Technology deals down as IPO fever lifts valuations, according to PwC US

Internet and software sectors continue to fuel deal activity triggered by an accelerating transition to Cloud Computing


SAN JOSE, May 16, 2012 – Against the backdrop of general economic uncertainty and an overall decline in deal volumes, technology businesses continue to lead other sectors in U.S. merger and acquisition (M&A) activity, according to PwC’s US technology M&A Insights report.  While technology acquirers are pursuing large acquisitions, volumes at the lower end are declining in part due to the resurgence in tech IPO valuations.

In the first three months of 2012, the report finds that technology sector deal volume decreased seven percent to 64 deals compared to 69 deals closed in the previous quarter. Despite the decline in volume, cumulative transaction value of $28.9 billion remained consistent with last year's trend of quarterly deal values of at least $25 billion. A year ago, deal volumes totaled 76 transactions with a cumulative deal value of $25.1 billion, demonstrating the year-over-year decline in volume evident throughout 2011.

“Improving financial markets combined with the relentless pace of technology innovation continued to fuel the recent rise in IPO activity,” said Rob Fisher, PwC’s U.S. technology industry transaction services leader.  “With listings on the rise, more technology businesses are pursuing the dual track approach to M&A of both the IPO and sales route.  So long as frothy IPO valuations do not spill too heavily into sellers’ expectations, the technology sector is expected to see continued strength in M&A activity throughout this year."

After a volatile 2011, healthy financial market growth in the quarter drove IPO activity in the first three months leading to 13 technology IPOs and another 14 IPO registrations.  The large volume of technology IPO listings witnessed 65 technology listings, a 27 percent increase from 2011.

Nine deals in excess of $1 billion closed during the first quarter with a combined value of $20.5 billion, the second-highest value of mega deals since 2008. Due to the number of transactions over $1 billion, coupled with the lower overall volumes, average deal value for the quarter was $452 million, well above the first quarter of 2011 at $330 million and the average for all of 2011 at $406 million.

Technology M&A is continuing the shift away from hardware and IT services toward the software and Internet sectors, which together contributed close to half of all deal volume and value for the quarter.   “Internet and software candidates have become prime acquisition targets, as providing the necessary tools for businesses in adopting cloud computing and the need to satisfy increasing consumer demand for ubiquitous access to information via mobile devices escalates,” added PwC’s Rob Fisher.

Software transactions by far outweighed other subsectors, contributing 39 percent of deal value and 28 percent of deal volume. Software was followed by the semiconductor sector, which contributed 19 percent of deal value and 20 percent of deal volume during the quarter.

The report finds that media development and delivery, access to corporate and personal data, and social networking continue to comprise the core focus of both internal development and external innovation acquisition activities.

According to PwC, the need for innovation has also spurred a number of companies to shore up their patent portfolios to protect their position, resulting in several announced transactions below the billion dollar range focused on companies with proven and patented IP.  “We expect M&A activity focused on beefing up patent portfolios to continue as businesses seek ways to protect existing technologies in an increasingly litigious environment while at the same time ensuring that they have a clear stake in the technological foundations of the future,” added 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 as of April 2, 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.

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Ray Yeung
Brainerd Communicators, Inc.
Tel: +1 (212) 986-6667