Although the Microsoft Corp. (Nasdaq: MSFT)-Skype Ltd. deal is dominating headlines this week, small mergers fueled high-technology M&A growth during the first quarter of 2011.
Companies transacted an increased number of smaller, strategically focused deals during the quarter, continuing a trend that began last year, according to consultancy and market research firm Ernst & Young. (E&Y notes that several larger deals, including Samsung Electronics' sale of its hard disk manufacturing business to Seagate Technology, will be included in its second-quarter data.)
Cloud computing and software-as a service (SaaS) were the motivating forces behind dozens of deals in the quarter, but three chip deals were among the Top 10. These mergers brought together makers of communications chips for mobile phone technologies (e.g., 3G and 4G/LTE chips) and chipmakers that produce devices for WiFi, WiMax, Bluetooth, GPS, and other wireless communications technologies. The largest of these deals was Qualcomm Inc. (Nasdaq: QCOM)'s $3.2 billion pending deal for Atheros Communications Inc. (Nasdaq: ATHR). There were at least half a dozen similar deals among the quarter's smaller transactions.
The total number of global deals grew by 26 percent, to 794, in the quarter, and the total value of tech M&A increased 124 percent to $27 billion.
The momentum behind global technology M&A growth makes a good case for a strong 2011, says E&Y. The year's opening quarter was the eighth consecutive quarter without a sequential decline in deal numbers. In addition, technology is increasingly influencing the development of the entire global economy through new waves of innovation around smart mobility, cloud computing, and social networking -- all of which are evident in the increasing cross-industry blur and the increasing value of information technology as a component of all products and services.
Moreover, technology companies have the fuel they need to increase M&A spending. In aggregate, the cash and investments held by the sector's top 25 companies grew to $544 billion by the end of the first quarter, an 18 percent year-over-year increase from $461 billion.
"These truly exciting technology innovations, the growing cash stockpiles that technology companies are increasingly challenged to put to good use and the strong start to the year represented by these first quarter M&A results suggest a big year for technology M&A in 2011," said Joe Steger, Global Technology Transaction Advisory Services leader at Ernst & Young, in a press release.
However, Japan's earthquake and tsunami, rising oil prices, and other global economic issues aren't distant memories yet. "Realistically, however, we must temper those pluses with concern over increasing divergence between buyers and sellers over valuation, geopolitical unrest, global debt issues and other unforeseeable possibilities," Steger concludes.