Value of Tech M&A on the Decline

High-tech companies are still sitting on piles of cash, but they aren’t using much of it for merger and acquisition, according to Ernst & Young’s most recent global technology update.

Tech M&A value declined to $28.2 billion in the third quarter of 2012, down 52 percent from the prior year. While the total number of deals was up slightly — to 752 — smaller, strategic deals are driving the overall M&A trend, the consultancy reports.

A weakened global economy and low macroeconomic confidence drove declines in technology mergers and acquisitions in the third quarter of 2012, explained an E&Y spokesman in an email. However, technology companies continued to strike smaller, more strategic deals driven by five disruptive megatrends — smart mobility, cloud computing, social networking, big-data, and cross-sector and cross-industry blur.

The study also found that the volume and value of cloud/software as-a-service (SaaS) deals remained significantly higher than any other deal driver in the third quarter. Mobile/e-payment technologies surged in value during the third quarter of 2012, and deal value surged again for healthcare information technology (HIT), after falling in the second quarter of the year. Social networking deals fell in value, but held steady in volume.

Tech companies aren’t holding out a lot of hope that valuations will rise anytime soon. In April 2012, 21 percent of respondents to the E&Y quarterly survey expected that valuations of M&A would decline in the next 12 months; in October, that figure rose to 45 percent.

A year-end turnaround would be challenging, but not impossible, E&Y reports:

    For example, cloud/SaaS deals were strong in 3Q12 and could fuel additional M&A; PE firms still have “dry powder” — unused funds that they have to invest soon or potentially give back to their investors; and smart mobile device makers now range from disruptive leaders to weakening providers in search of turnarounds — and many in between looking for a lever to success.

4 comments on “Value of Tech M&A on the Decline

  1. ITempire
    November 13, 2012

    Larger IT firms have themselves created so much rivalry with each other that friendly mergers have become a remote possibility. Nonetheless, exceptions are always there and we cannot rule out that two big firms join hands for competitive advantage.

  2. SP
    November 14, 2012

    Agreed the tech companies have made more rivals than helping each other. Most of the merger and acquisition kills the weaker party. Unless its the win win situation for both the parties or unless one is really a big guy it doesnt turn out good. So I guess Tech M&A are less.

  3. AdityaJayaram
    November 14, 2012

    Interesting thoughts , just read this M&A thought leadership whitepaper ' Increasing trend of sell-side due diligence ' on sell side due diligence and why it is important in an m&a activity. @ readers will find it very useful .

  4. Barbara Jorgensen
    November 14, 2012

    It's not a surprise the values have come down, but it's bad news for companies that are looking for a potential buyer. But I'm not hearing much about buyers aggressively pursuing other companies and taking advantage of a buyers market either. They are still sitting on their cash. There's a wait and see attitude regarding the economy, and it hasn't budged even though the US election is finally over. The next inflection point will be tax policies..and by then there will probably be a new reason not to invest.

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