Deal activity in global technology sector grows lightly to $466 billion

13 March 2017 Consultancy.uk

M&A activity in the technology industry has grown slightly last year, from $459 billion the year previous to $466 billion. While corporate activity waned, private equity activity remained relatively strong, particularly in the Americas.The semiconductor sector was the most actively sought target in Q4 2016, while the largest buyers were non-tech companies, seeking, among others, to pick up innovation.

In EY’s latest Global Technology M&A report, titled ‘Digital disruption propels industry shifts — and record annual value’, the firm explores deal activity in the technology M&A sector over 2016, including focus on Q4 2016 across global regions.

Aggregate value of announced deals by deal size

The research found that Q4 of last year was relatively representative of the year as a whole and of the year previous. 75% of the deals in the sector surpassed $1 billion in value in Q4 2016, totalling $117 billion. Billion dollar deals were down on Q4 2015 however, when they totalled 81% of all deals, with total value of $189 billion. Total deal value across 2016 was slightly higher than that of 2015, even with disparity between the Q4 quarters, with total aggregate value hitting $466 billion from $459 billion.

According to Jeff Liu, EY Global Technology Industry Leader, Transaction Advisory Services, “The second-half slowdown in global technology M&A deal volume suggests tech companies are approaching a dealmaking plateau. But with digital disruption still in its infancy and the extraordinary growth of IoT-related deals, we don’t expect this dip in volume to translate into a long-term decline in dealmaking.”

Global technology transaction scorecard 2015 vs. 2016

Across the whole year, the research found that the number of corporate deals dipped slightly, down from 3,711 in 2015 to 3,413 last year. The corporate sector was by far the biggest player in the acquisition space, investing $376 billion, although this dipped 7% on the year previous. The average value of deals was up however, as targets became harder to find – jumping from $483 million to $533 million.

The PE segment saw considerably increased deal activity on last year, as the number of announced deals jumped 34%, from 285 to 383, while value jumped 61% more than $90 billion. The average value of disclosed deals also jumped, from $628 million to $819 million.

Americas transactions scorecard Q4 2016

Q4 2016 saw corporate deal activity slide year-on-year, with deal value falling by 52%, while the average value of deals saw a 35% decline. The number of deals announced was down slightly, by 7%. In the PE segment, total deal disclosed value grew 49%, to close to $10 billion, while the number of deals announced was up 63%, to 65 total. Year-on-year for both segments, however, deal value saw a 48% decline.

The firm notes that three areas were particularly active last year in the Americas. IoT volume increased 30% to 221 deals for the year and value tripled (+203%) to $103.4 billion; cybersecurity disclosed-deal value rose 48% to $39.8 billion in 2016; and big data analytics, volume rose 13% to 428 deals, but value fell 7% to $35.6 billion.

Asia-Pacific and Japan transactions scorecard

In the Asia-Pacific region and Japan, deal announcements saw a sharp year-on-year decline in Q4 2016, falling 27%, while deal value fell 19%, from $18 billion to $15 billion. Average value of deals with disclosed values rose however, up 25% to $329 million. In the PE segment, deal volumes were up three, to 8, while total value dropped to $5.3 billion. The PE market was very subdued in the final quarter of last year in the region.

EMEA transactions scorecard Q4 2016

The full year results for the EMEA region saw a minor (4%) decline in deals, while value fell 19% on the year previous to $57.6 billion. In Europe corporate deal activity in the final quarter of last year was down 20%, even while total deal value jumped 183% to $9.2 billion – largely from Siemens’s acquisition of Mentor Graphics Corporation for $4 billion and Cinven/Permira/Mid Europa’s acquisition of Grupa Allegro for $3 billion.

Simon Pearson TMT Corporate Finance Leader, United Kingdom and Ireland Region, remarks the that regions “EMEA tech and non-tech companies alike are using M&A to maintain a competitive edge in global markets, focusing on key areas such as security, big data analytics, semiconductor design and IoT.”

Global technology transactions value flow by sector

In terms of transaction by type, semiconductor companies were the main target in 2016, at 27% of total deals, followed by software/SaaS firms, at 26%. Internet and IT services came next, at 16% and 12% respectively. In Q4 this year, buyers were even more keen on the semiconductor segment, with 38% of total deals in the segment, followed by Software/SaaS and IT services.

On the buyer side, non-tech firms have been keen to get their hands on tech companies, representing the largest chunk of buyers at 23%. PE, Software/SaaS and Semiconductors follow, all on 19% of the total share. Q4 of last year saw particularly semiconductor companies active, followed by PE.

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8 tips for successfully buying or selling a distressed business

18 April 2019 Consultancy.uk

Embarking on the sale of a business is one of the most challenging experiences a management team can undertake. Even serial dealmakers acknowledge that the transaction process can be gruelling, exposing management to a level of scrutiny and challenge through due diligence that can be distinctly uncomfortable.

So, to embark on a sale process when a business is in distress is twice as challenging. While management is urgently trying to keep the business afloat, they are simultaneously required to prepare it for scrutiny by potential acquirers. Tim Wainwright, an experienced Transactions Partner with Eight Advisory, says that this dual requirement means sellers of distressed businesses must focus on presenting their business in a way that supports buyers in identifying value, whilst simultaneously being open about the causes of distress. 

According to Wainwright, sellers of distressed businesses should focus on eight key aspects to ensure they are as well prepared as possible:

  • Cash: In a distressed situation cash truly is king. Accurate forecasting and day-by-day cash balances are often required to ensure any buyer is confident that scarce cash reserves are under proper control. 
  • Equity story and turnaround plan: Any buyer is going to want to understand the proposed turnaround strategy: how is the business going to enact its recovery and what value can be created that means the distressed business is worth saving? Clear presentation of this strategy is essential.
  • The business model: Clear demonstration of how the business model generates cash is required, with analysis that shows how financial performance will respond to key changes – whether these are positive improvements (e.g., increases in revenue) or emerging risks that further damage the business.  Demonstrating the business is resilient enough to cope with these changes can go a long way to assuring investors there is a viable future.
  • Management team: As outlined above, this is a challenging process. The management team are in it together and need to be consistent in presenting the turnaround. Above all, the team needs to be open about the underlying causes that resulted in the distressed situation arising.  A defensive management team who fail to acknowledge root causes of distress are unlikely to resolve the situation.

8 tips for successfully buying or selling a distressed business

  • Financing: More than in any traditional transaction, distressed businesses need to understand the impact on working capital. The distressed situation frequently results in costs rising as credit insurance becomes more difficult to obtain or as customers and suppliers reduce credit. Understanding how these unwind will be important to the potential investors.
  • Employees: Any restructuring programme can be difficult for employees. Maintaining open communications and respecting the need for consultation is the basic requirement. In successful turnarounds, employees are often deeply engaged in designing and developing solutions. Demonstrating a supportive, flexible employee base can often support the sale process.
  • Structuring: Understanding how to structure the business for the proposed acquisition can add significant value. Where possible, asset sales may be preferred, enabling buyers to move forward with limited liabilities. However, impacts on customers, employees and other stakeholders need to be considered.
  • Off balance sheet assets: In the course of selling a distressed business, additional attention is often given to communicating the value of items that may not be fully valued in the financial statements. Brands, intellectual property and historic tax losses are all examples of items that may be of significant value to a purchaser. Highlighting these aspects can make an acquisition more appealing.

“These eight focus areas can help to sell a distressed business and are important in reaching a successful outcome, but it should be noted that it will remain a challenging process,” Wainwright explains. 

With recent studies indicating that the valuation of distressed business is trending north. With increased appetite from buyers who are accustomed to taking on these situations, it is likely that more distressed deals will be seen in the coming months. “Preparing management teams as best as possible for delivering these will be key to ensuring these businesses can pass on to new owners who can hopefully drive the restructuring required to see these succeed,” Wainwright added.