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Tech M&A Gets Off to a Strong Start in Q1

Although the {complink 3426|Microsoft Corp.}-{complink 5029|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 {complink 4505|Qualcomm Inc.}'s $3.2 billion pending deal for {complink 514|Atheros Communications Inc.}. 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.

11 comments on “Tech M&A Gets Off to a Strong Start in Q1

  1. AnalyzeThis
    May 11, 2011

    Obviously there has been a ton of M&A activity so far this year… like you say, the Skype deal is currently getting a lot of attention, but there are a wide variety and large number of smaller deals which are also quite interesting and significant.

    Hard to believe it's only May! This could be a huge year. Will we see deals even bigger than Microsoft/Skype get done? I think there's a strong possibility, especially if Apple decides to make use of their massive pile of money…

  2. saranyatil
    May 12, 2011

    Q1 has created an intense impact like the tsunami in Japan, One side natural calamities along the other economy is growing. It seems like recovery on one side and M & A on the other.

    Microsoft M&A with skype is a good move in this year this will boost the position of microsoft. offlate they have not bought many companies last year i think they just bought 3.

    they must working out big startegies to have a greater share on the smartphone OS market.

    Is this merger going to create a great value, must watch.

  3. Anand
    May 12, 2011

    @saranyatil,

     I agree with you, we are getting mixed pictures. Inspite of events like Japans calamity, middle east unrest,  inflation etc economy is showing signs of strength. I think we need to wait for couple of more quarters to get the clear picture of where economy is heading.

  4. saranyatil
    May 12, 2011

    anandvy,

    definitely there is going to be a rapid growth thats how i feel looking into the first quater.

  5. jbond
    May 12, 2011

    It is looking like 2011 could be a rather larger year of M&A's. There have been some significant deals done or in the works and we are not quite half way through the year. It is nice to see some of these deals being done because they make good business sense and not because one business was failing and heading down the wrong path.

    It will be interesting to see what the next big deal is, or what other significant deals go on before year's end. Will Apple spend some of its stockpile of cash?

  6. eemom
    May 12, 2011

    It is a significant step to see these companies that have been “hoarding cash” to utilize their newly found wealth in a way to help service the industry and further technology.  This shows confidence in the economic recovery efforts and a strong outlook moving forward.  Stronger earnings and positive reporting will all lend confidence for a brighter future ahead.  It is encouraging that we are seeing these positive results despite of the unrest that has plagued the world in the first quarter.

  7. DataCrunch
    May 12, 2011

    I am glad to see Microsoft taking risks like the recent Skype deal.  Some may argue that the price tag they paid for the company was too steep, but the move expands Microsoft into new areas and will complement existing product offerings.  I have commented on previous posts about Apple and not being surprised if they look to acquire in the area of software and even go after an acquisition of Facebook. 

  8. itguyphil
    May 12, 2011

    I think it will be a success since MSFT's biggest boon is the enterprise. Alot of large organizations already use Skype for instant communication purposes. If they can have this leveraged in the Office suite as well, it can be a MAJOR plus fopr the guys in Redmond!

  9. hwong
    May 17, 2011

    Skype's quality is really much better than the Google phone calling from their mail app. I have had terrible reception from google whereas Skypes not a problem due to slow Comcast internet connection

  10. hwong
    May 17, 2011

    Unfortunately I still do not see a pickup in hiring despite of all hype of rebound.

  11. elctrnx_lyf
    May 23, 2011

    Rebound is true, but the M&A will certainly lead to reducing the staff. So as comapnies acquire new small companies some people actually loose jobs in the process of merge.

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