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The Pace of Technology Deals Picks Up in Q3

NEW YORK — Global technology mergers & acquisitions (M&A) increased in deal number and value, both year-over-year and sequentially, in the third quarter of 2010 (3Q10), buoyed by cross-border M&A and a resurgence of private equity (PE) activity. Strategic business initiatives — driven by trends such as the global shift to a smart economy, increasing demand for smart mobility, and the blurring of industry boundaries, are expected to continue to sustain the growth trajectory for global technology M&A, according to Ernst & Young’s Global technology M&A update, July – September 2010

Joe Steger, Global Technology Transaction Advisory Services Leader at Ernst & Young, says, “Technology deal-makers appear to have decided that their strategic M&A needs cannot wait for the global economy to strengthen. Growing demand for connectivity and real-time access to actionable information over mobile devices is transforming the sector and propelling the globalization and convergence of technology platforms with other industries, spurring deal activity.”

Technology deals picked up in 3Q10 fueled by strategic business initiatives such as e-commerce, cloud computing, social networking, online gaming, wireless telecommunications and mobile security. The number of deals announced during 3Q10 climbed 43% compared to the same period last year and 11% over the previous quarter, when macroeconomic uncertainty in the global economy likely played a role in constraining the number of deals. Total deal value in 3Q10 increased by 48% compared to the same period last year and 50% over the previous quarter to US$46.2 billion. In addition, 11 deals over US$1 billion were announced in 3Q10, bringing the year-to-date number of big-ticket deals to 20, one more than in all of last year and 6 more than in all of 2008.

Cross-border surge continues
After a pause in the first quarter of 2010, cross-border technology deals have significantly outpaced domestic deal growth for the past two quarters. Following a strong rebound in the second quarter of 2010, cross-border deal numbers surged in 3Q10, accounting for 51% (US$23.5 billion) of total deal value. PE – a growth story within the growth story

The number of technology PE deals (99) announced in 3Q10 was up 77%, over the previous high of 56 deals achieved twice (in 4Q09 and 1Q10), since the low point of 1Q09. Likewise, the PE total value of US$7.8 billion is 41% higher than the highest quarterly total (US$5.6 billion) since 1Q09. However, that total value remains well below the levels of early 2007, when US$25.3 billion in disclosed PE deal value was posted in the first half of the year.

Short-term outlook is bright

The aggregate value of cash, short-term and long-term investments of the top 10 technology companies has grown 32% year-over-year to US$276 billion*.

“Technology firms are well positioned to execute transactions,” says Steger. “Leading technology companies have good financial flexibility, owing to significant cash balances and little leverage; however, many US technology companies have significant amounts of cash 'trapped' offshore, which limits the amount of cash available for US acquisitions.”

At the same time, the trends that are driving technology M&A activity, which we have pointed to in the past, are not likely to abate soon.

“The global shift to an economy based on smart everything, mobile everything, and the blurring of traditional technology sectors will continue to present new deal opportunities for the foreseeable future,” says Steger. “A continued downturn in global economic confidence is the one thing that could dampen the short-term outlook.”

*The top 10 companies identified are based on average ranking of market value and sales at 1 January 2010. The total cash, short and long-term investment numbers of the top 10 companies are based on Ernst & Young analysis of Capital IQ data, last accessed on 20 October 2010.

Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit Ernst & Young Global Limited

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