Technology Deals Drop Abruptly in First Quarter of 2013, Says PwC US Outlook Turns Positive as Dealmakers Expected to Return and IPO Filings Rise
SAN JOSE, Calif., April 30, 2013 /PRNewswire/ -- While the first quarter of 2013 saw technology M&A drop precipitously, the foundation is potentially being laid for more robust deal activity this year as political and economic uncertainties subside, according to PwC's US technology M&A Insights report released today. Software M&A had the highest number of deals for the first quarter driven by companies across industries investing in software-driven functionality and automation in products and services.
In the first quarter of 2013, PwC found that technology sector transaction volume decreased 38 percent to 40 deals closed compared to 65 deals closed in the last quarter of 2012. Deal value fared worse as a result of few deals in excess of $1 billion closing by March. First quarter deal value dropped 60 percent to $8.3 billion from the previous quarter. Compared with deal activity in the first quarter of 2012 with 65 deals closed totalling $29.5 billion, deal volumes and values decreased 38 percent and 72 percent, respectively, in the first quarter of 2013.
"Driven by the global macroeconomic uncertainties, the first quarter of 2013 saw technology deal volume and values drop unexpectedly to a four-year low as businesses prioritized operations above M&A," said Rob Fisher, PwC's U.S. technology industry deals leader. "Nevertheless, strong fundamentals, record cash levels and high equity valuations as well as promising recent announcement make Q1 M&A seem more like a 'pause' than a trend."'
According to the report issued by PwC, seven technology IPOs were placed in the first quarter of 2013 with total proceeds of just under $1 billion, still below the volume and value of IPOs in the fourth quarter of 2012 but a strong start to the year. More importantly, these new listings registered a one-day average return of 27 percent, the highest of any industry. With new registrations increasing 41 percent in the first quarter, along with improved returns and high public filing activity late in the quarter, the technology industry may be poised for a more active IPO market.
The software sector dominated transaction activity across the subsectors and is expected to continue its dominance as deal activity rebounds.
- Software deals accounted for 53 percent of deal volume and 69 percent of deal value in the first quarter with a wide array of deals that included companies providing solutions to the education, manufacturing, banking, retail, entertainment and other industries, with tools to enable interactive entertainment, gaming, investment analysis, 3D technology, mobile banking, data analytics and enterprise management.
- Internet transactions comprised 13 percent of total deal volume and 18 percent of total deal value for the period, a 58 percent decline in volume from the prior quarter and a 36 percent decrease in value.
- IT services and semiconductor businesses also experienced declines with semiconductor deal volumes dropping 25 percent from last quarter and IT services declining 50 percent.
- The hardware sector was the hardest hit with hardware deal volume decreasing 79 percent from the prior quarter and 67 percent from the first quarter of 2012.
For the first quarter of 2013, private equity (PE) deals declined significantly, while one large PE transaction accounted for half of the quarter's deal value. According to the report issued by PwC, the acceleration of private equity deals during the second half of 2012, due to the potential of changing tax legislation, led to the first quarter decline as private equity players paused to digest the run-up of prior deals. Eight of the 40 deals closed during the quarter were acquired by financial investors or backed by financial sponsors.
"More recent deal announcements by large technology companies suggest that historically acquisitive players are returning to the deal table. These factors combined with the record levels of cash on hand and high equity values by the technology majors indicate a growing confidence that deal activity may rebound in the quarters to come," 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, 2013, 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.
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SOURCE PwC US