Greater private equity prominence and resurgence of divestiture-driven transactions expected for 2013
SAN JOSE, February 26, 2013 – While the pace and value of technology sector deals are expected to mimic that of 2012, the outlook for 2013 technology deals will focus on the new core of mobile, social, analytics and security, according to PwC’s US Technology M&A Insights 2012 Year in Review and 2013 Outlook report released today.
As technology companies continue to focus on core businesses, digest strategic acquisitions of the last decade, and work to scale their already acquired offerings, PwC anticipates a similarly subdued deal environment in 2013. Furthermore, private equity buyers are expected to continue to take on a more prominent role combined with a resurgence of technology divestitures.
“The pressure of disruptive innovation has technology companies constantly seeking the next competitive differentiator, which requires investing in new talent, new technologies, R&D and M&A as a means to all three,” said Rob Fisher, PwC’s US technology deals leader. “With technology corporate cash balances continuing to grow and a large amount of capital held by private equity funds waiting to be deployed, 2013 could prove to be an important year for technology deals and divestitures.”
According to M&A Insights, cumulative technology deal value for 2012 closed at $103.4 billion, a decrease of 17 percent from 2011. Economic and political uncertainty played their part in driving down deal volumes, which decreased 19 percent, ending the year at 249 closed transactions, compared to 308 deals closed in 2011.
PwC reveals that U.S. buyers focused inward amid domestic economic softness and global uncertainty. Domestic transactions comprised 71 percent of deal volume and 76 percent of deal value in 2012, compared to 62 percent of deal volume and 67 percent of deal value in 2011.
The report finds that technology deals continue to shift away from hardware-focused to software and Internet transactions, largely as a result of a marked industry focus on cloud-based technologies.
Private equity deals comprised 34 percent of total technology deals with disclosed values in 2012 compared to less than 25 percent in 2011. Software and Internet transactions with private equity participation comprised 63 percent of volume and 76 percent of value in 2012, a significant shift from the previous year, which saw volume and value evenly spread across the five tech sectors tracked.
“With some of the lowest credit rates in recent history and significant investment reserves waiting on the side-lines, tech-focused private equity firms are well-positioned to acquire technology businesses in 2013,” said Fisher.
Resurgence in Divestitures
As overall M&A activity declined, PwC found that divestiture transactions increased 59 percent in 2012 to near 2010 levels with 311 divestitures recorded in 2012 compared to 201 in 2o11. The rise in divestiture activity in the latter half of 2011 continued into 2012 resulting in at least 19 divestitures, and as high as 35, for each month of 2012. Technology divestitures as a percent of total technology M&A volume rose from a low of 4 percent in the first quarter of 2011 to 22 percent in the fourth quarter of 2012.
Cumulative divestiture deal value for transactions reached $31.2 billion in 2012 compared to $18.5 billion in 2011, an increase of 95 percent. The top 10 divestitures of 2012 represented nearly 60 percent of this value, a decrease from 2011, when 80 percent of total disclosed deal value was represented by the top 10 divestitures.
“After essentially a decade long industry consolidation, technology companies are poised to engage in what could be a significant resurgence in divestiture activity as they shed lackluster acquisitions and unwanted assets as a result of strategic realignment and adjustments to adapt to today’s shifting technological landscape,” added Fisher.
The report outlines the following drivers as catalysts for 2013 technology deals:
PwC’s US technology M&A Insights is a quarterly analysis based on data for transactions with a disclosed deal value greater than $15 million, as provided by Thomson Reuters through December 31, 2012 and supplemented by additional independent research. Information related to previous periods is updated periodically based on new data collected by Thomson Reuters for deals closed during previous periods but not reflected in previous data sets.
PwC’s Deals practitioners help corporate and private equity executives navigate transactions to maximize value and returns. In today's increasingly daunting economic and regulatory environment, experienced M&A specialists assist clients on a range of transactions from smaller and mid-sized deals to the most complex transactions, including domestic and cross-border acquisitions, divestitures and spin-offs, capital events such as IPOs and debt offerings, and bankruptcies and other business reorganizations. We help clients with strategic planning underpinning their growth and investment agendas and then advise on the business-wide risks and value drivers in their transactions for more empowered negotiations, decision making and execution. Clients can then expedite their deals, minimize their risks, capture and deliver value to their stakeholders, and quickly return to business as usual.
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