US technology sector to return to robust deal making in 2010, according to PricewaterhouseCoopers LLP

Stronger balance sheets, improving credit markets, & better market valuations to drive rebound

Returning IPO market provides viable alternative to trade sale for first time in 5 years

NEW YORK, NY – FEB. 16, 2010 – US Technology sector deal activity is expected to increase steadily in 2010, bolstered by stronger balance sheets, improved credit markets and better market valuations, according to PricewaterhouseCoopers’ (PwC) Transaction Services 2010 US Technology M&A Insights report. Driven by the surge of technology deals completed in the latter half of 2009, PwC expects deal activity to continue apace in 2010, albeit still below the levels seen in 2006-2007.

The declines in overall US Technology transaction value and volume that began at the tail end of 2007 continued in 2008 and accelerated in 2009. Closed deal values dropped 53% to just over $36 billion compared with the $77 billion posted in 2008, while deal volume declined from 195 to 108 in 2009. Of the total deals closed during 2009, 65% of volume and 85% of value occurred in the second half, with almost 50% of the total deal value completed in the last two months of 2009.

“The first half of 2009 was a challenging one for the US Technology industry, as uncertainty reigned supreme and companies struggled to forecast their next quarter’s results. Yet, as markets began to regain some ground and CEO confidence grew, technology deal makers began to shift into high gear,” said Todson Page, partner with PricewaterhouseCoopers’ technology transaction services practice. “With almost 50% of overall technology deal value and volume completed in the last two months of the year, we expect this strong momentum to continue into 2010.”

US technology deals 2009

Middle-market transactions gave up little ground from the previous year, when transactions in the sub-$500 million range represented over 90% of all transactions completed. The number of cross-border deals fell significantly in 2009, dropping 60% from the previous year, with US to Asia transactions hardest hit.

Outlook for 2010 US Technology deals

The much anticipated return of the IPO market portends increased exit activity in 2010. The volume of technology company registrations on file indicates that the overall impact will be a likely increase in the competition for deals. Further, PwC expects 2010 to deliver higher levels of private equity acquisitions and exits than those witnessed over the past 18 months; however, valuations are expected to remain challenging.

“Throughout much of 2009, technology private equity owners were diligently preparing many of their most promising portfolio companies for public listing,” said Amity Millhiser, partner with PricewaterhouseCoopers technology transaction services practice. “Many of these funds have plenty of cash to put to work; however, their main focus in 2010 will be on improving what they already have in their portfolios.”

Macro trends driving technology sector M&A activity in 2010:

Middle markets driving deal volume. In 2010, PwC expects middle-market deals to return to their long-term trend and position as the engine of technology deal volume.
Divestitures make their way to market. Planned divestitures that had been put on hold due to valuation uncertainty are expected to make their way into the pipeline. As larger deals are announced, PwC expects to see an increase in regulatory reviews that will result in mandated divestments of business units, further feeding the middle market. (Also see PwC’s Fall 2009 Divestitures Survey.)
Cross-border deal activity increases. Early indications for 2010 suggest increased activity inbound from Asia to the US, as Asian technology players shop for brands and market entry. PwC expects opportunistic outbound activity from the US to certain European markets, as long as weaker exchange rates make local players look more attractive.
Private equity adjusts to the new normal. The slowly recovering debt market will continue to dictate the size and nature of technology deals pursued by private equity in 2010, according to PwC. Bolt-on acquisitions for portfolio companies looking to bulk up prior to an IPO and the occasional opportunistic buy are the most likely outcomes for a year in which private equity firms, like the technology industry at large, adjust to the new normal.

PwC’s report also includes an analysis and outlook for the following Technology subsectors:

Software: Software transaction values dropped almost 80% as the middle market dried up in 2009. PwC expects a return of middle market transactions with cloud and security applications gaining the most interest in 2010.
Internet: Internet deal volume dropped 60% as major players continued to stay on the sidelines in 2009. In 2010, expect industry titans to return to the hunt for technology extensions in real-time search and location-based apps.
Semiconductor: After a similar drop in 2008, the Semiconductor sub-sector saw a 50% decline in deal activity, as it continued to hunker down in survival mode. PwC expects that capacity constraints to favor buy (versus build) will spur consolidation as the industry enters its latest recovery cycle.
IT Services: Despite activity seen with the game changers, IT Services deals remained down 50% in 2009. PwC contends that there remains an appetite for deals; however large targets are scarce. 2010 will also present healthcare and government-related opportunities, especially in the middle market.
Hardware/Networking: The sole bright spot in technology deals posted a 74% increase in value while volume remained flat. PwC expects that unified computing will continue to drive land grabs by larger players which will also ripple into the middle market.

About the report

Published annually with quarterly updates by PwC’s Technology Transaction Services practice, the annual US Technology M&A Insights report covers deal activity and trends in the US technology industry. PwC based its findings on data provided by industry-recognized sources, including DealLogic.

For a copy of the 2010 PwC TS US Technology M&A Insights report, visit www.pwc.com/ustransactionservices.

About PwC's Transaction Services Practice

The PricewaterhouseCoopers Transaction Services practice provides due diligence for M&A transactions, along with advice on M&A strategy and integration, restructuring, divestitures and separation, valuations, accounting, financial reporting, and capital raising. With approximately 1,000 deal professionals in 16 cities in the United States, and a global network of over 6,000 deal professionals in 90 countries, experienced teams are deployed with deep industry and local market knowledge and technical experience tailored to each client's situation. The Transaction Services team can be involved from strategy to integration and employ an integrated business approach to uncover the realities of a deal. The field-proven, globally consistent, controlled deal process helps clients minimize their risks, progress with the right deals, and capture value both at the deal table and after the deal closes.

For more information about M&A and related PricewaterhouseCoopers services in the technology industry, please visit www.pwc.com/ustransactionservices or www.pwc.com/technology.

About PricewaterhouseCoopers

PricewaterhouseCoopers (http://www.pwc.com) provides industry-focused assurance, tax and advisory services to build public trust and enhance value for its clients and their stakeholders. More than 163,000 people in 151 countries across our network share their thinking, experience and solutions to develop fresh perspectives and practical advice.

"PricewaterhouseCoopers" refers to PricewaterhouseCoopers LLP or, as the context requires, the PricewaterhouseCoopers global network or other member firms of the network, each of which is a separate and independent legal entity.

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