Technology deals shift toward consortium buyers with more aggressive pursuit of patent acquisitions
SAN JOSE, August 13, 2012 – With deal volumes declining as a result of global economic trends, technology industry acquirers remain the most active among businesses, generating 20 percent of U.S. merger and acquisition (M&A) deal volume so far this year, according to PwC’s US technology M&A Insights report. The busiest technology acquirers have switched gears to focus on integrating large acquisitions that closed in the last four quarters, and to potentially shed non-core assets in coming months.
In the second quarter of 2012, PwC found that technology sector deals continued their downward trend, as transaction volume decreased 15 percent to 55 deals, compared to 65 deals closed in the previous quarter. Despite the decline in volume, cumulative transaction deal value increased eight percent to $31.8 billion. A year ago, deal activity in the second quarter of 2011 totaled 85 transactions with a cumulative deal value of $26.8 billion, representing a deal volume decrease of 35 percent, but an increasing deal value of 19 percent in the second quarter of 2012.
“The higher market volatility triggered an increasing number of consortium deals by private equity buyers, minority stake transactions and growing patent acquisitions,” said Rob Fisher, PwC’s U.S. technology industry transaction services leader. “Driven by the hyper-competitive technology landscape, tech players are becoming more aggressive in expanding patent portfolios to defend market positions, pointing to greater creativity in the continuous race for growth and innovation.”
After a robust first quarter of IPO activity, technology IPOs pulled back in the second quarter with 10 listings recorded compared to 13 in the previous quarter. The decline reflects an overall US IPO trend, which saw IPO volumes decrease 39 percent from the first quarter. Despite declines in the technology industry, technology IPOs led all other industries in both volume and value during the quarter.
Six deals in excess of $1 billion closed during the second quarter with a combined value of $23.3 billion. Triggered by one large acquisition, the average deal value for the quarter was $578 million, well above the $315 million average in the second quarter of 2011. According to PwC, average deal value is expected to decline for the remainder of 2012, signalled by fewer deals announced above $1 billion and no deals announced in excess of $5 billion in the past six months.
“The line between Internet and software continues to blur as acquirers augment cloud-based offerings and push more services to the Web,” said PwC’s Fisher. Second quarter technology M&A trends continue with accelerated software and Internet sector deal activity. E-commerce and cloud services and solutions, along with stand-alone and Internet-based software products, represented a staggering 58 percent of deal volume during the quarter.
The report finds increasing transactions for minority positions in existing businesses. Consortium deals involving multiple private equity buyers, corporate buyers as well as investors of smaller stakes in innovative businesses are providing access to key technologies and talent through alternative structures historically sought by acquisition. Private equity buyers were active and comprised three out of the top 10 largest deals closed during the second quarter of 2012.
“As technology businesses identify non-core assets for spin-off or divestiture, we expect another wave of deal activity to offer abundant opportunities for future transactions, as long as buyers are willing to spend stockpiles of cash accumulated during the last few years of generous growth,” added PwC’s Fisher. “The potential impact of a prolonged slowdown in IPO activity may further boost deal activity as former IPO candidates instead consider the M&A route.”
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 July 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.
For additional analysis and commentary on U.S. deals in the technology industry, please visit: www.pwc.com/technology.
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