Strong Start to 2014 Technology M&A with Uptick in Billion Dollar Deals, Says PwC US

Software and Internet Remain at Forefront of 2014 Deal-Making

SAN JOSE, May 21, 2014 – Technology deals for the first quarter of 2014 started strong, continuing the momentum of the second-half surge of 2013. Equity markets remained near record highs and IPO activity remained robust in an improving economy, according to PwC’s US Technology deals Insights Q1 2014 Update, released today. Software and Internet deals continue to dominate as cloud, mobile and data drive much of the industry focus today.

In the first quarter of 2014, PwC found that technology sector transaction volume remained on par with the fourth quarter of 2013 with 57 deals closed for a total of $22.6 billion. Compared to the slower first quarter of 2013, transaction activity grew substantially with volume up 36 percent and value more than doubling at 113 percent. There were seven deals in excess of $1 billion in the first quarter, compared to an average of four to five per quarter during 2013.

“With a stellar start to 2014, the first quarter saw more billion dollar transactions making headlines as the technology sector deal market continues to thrive amid rapid change and improving economic global conditions,” said Rob Fisher, PwC’s U.S. technology industry deals leader. “With software embedded in virtually everything, software and Internet sector deal activity continues to flourish, offsetting declines in other subsectors. Looking ahead, we expect a robust outlook for technology deals tempered only by valuation pressures from IPO alternatives and overall competition for quality assets.”

According to the report, 13 technology IPOs occurred in the first quarter of 2014 with total proceeds exceeding $1.9 billion. Technology IPO average one-day returns neared 34 percent and current year-to-date returns averaged 12 percent, both surpassing the overall growth of 2014 market indices. Publicly announced IPO registrations filings totalled 24 for the quarter with additional registrations filed confidentially under the rules of the US JOBS Act.

Whether investing in growing IT budgets or engaging in similar acquisitions, PwC finds that companies across industry sectors are honing their interests in software and cloud services to improve product offerings. As a result, software-driven products and services are expected to remain at the forefront of 2014 deal activity. Software and Internet deals accounted for a combined 34 transactions with a total deal value of $14.3 billion in the first quarter. This represents a 26 percent increase in volume and 92 percent increase in value from the first quarter in 2013.

Hardware, semiconductor, and IT services sectors all experienced declines in both volume and value compared to the fourth quarter. Average deal size remains highest in hardware at $555 million, compared to an average of $396 million for the first quarter across all technology deals. After several notable semiconductor deals in the fourth quarter, volumes slid 43 percent and values 87 percent in the first quarter to an average deal size of $51 million. In IT services, volumes declined 25 percent and values declined 22 percent, while average deal size increased from $269 million to $278 million.

According to PwC, private equity (PE) played a significant role in technology deals this quarter and were involved in several of the billion dollar transactions closed in the period. 24 (42 percent) of the 57 deals closed in the first quarter were either acquired by financial investors or backed by financial sponsors as part of the sale process. This represents a substantial increase over previous periods, where, for example, private equity deals represented less than a third of total deals closed.

“Strong expectations for capital markets and IPOs, coupled with increased economic optimism all point toward an active technology deals market as companies seek to keep pace with the fundamental shifts in the IT landscape. Furthermore, consolidation may become an increasingly important driver for deal-making as the pressure on technology companies to innovate and drive business model efficiencies accelerates,” added PwC’s Fisher.

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 March 31, 2014, 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 increase value and returns. In today's increasingly daunting economic and regulatory environment, our 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 around their growth and investment agendas and advise on business-wide risks and value drivers in their transactions for more empowered negotiations, decision-making and execution. We help clients expedite their deals, reduce their risks, capture and deliver value to their stakeholders and quickly return to business as usual.

Our local and global deal strength is derived from over 1,400 deal professionals in 21 cities in the U.S. and over 9,800 deal professionals across a global network of firms in 75 countries. In addition, our network firm PwC Corporate Finance provides investment banking services within the U.S.

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