Technology Mergers and Acquisitions Value Nearly Doubles in 2Q 2011

NEW YORK, Aug. 10, 2011 /PRNewswire/ -- Big-ticket deals drove the aggregate value of global technology mergers and acquisitions (M&A) to US$52.1b in the second quarter of 2011, nearly doubling the deal value from an already strong first quarter, according to Ernst & Young's Global Technology M&A update, April – June 2011.

The surge was powered by industry consolidation and by ongoing disruptive innovation in areas such as cloud computing, smart mobility, internet and mobile video, the smart grid and solar energy, the report states.

The US$52.1 b in 2Q 2011 aggregate value (of deals with disclosed values) was 92% higher than in 1Q 2011 (US$27.1b) and 69% higher than the year-earlier quarter (US$30.8b). The average value for deals with disclosed-values rose to US$194m — the highest quarterly average since the first quarter of 2000, during the dot-com boom. According to published reports, the 2Q 2011 quarter includes the 20th-largest global technology deal ever by dollar value.

Joe Steger, Global Technology Transaction Advisory Services Leader at Ernst & Young, says: "The high aggregate and average values of global technology companies' strategic transactions in the second quarter — overcoming the quarter's increasing macroeconomic uncertainty, unrest in the Middle East and the aftereffects of the earthquake and tsunami in Japan — are a testament to the power of the disruptive technology innovations occurring today and the high level of confidence in the future that's held by many technology executives. New waves of innovation, especially around smart mobility, cloud computing and social networking, are now influencing the development of the entire global economy."

Big trends drive big deals — and lots of smaller deals, too

While the trends mentioned above — cloud computing, smart mobility, internet and mobile video, the smart grid and solar energy — were behind the quarter's top 10 largest deals by dollar value, they also drove hundreds of smaller deals in the quarter, according to the Ernst & Young report. "Importantly, even though 61% of all disclosed value was concentrated in the top 10 deals, we also saw significant deal-making strength at the opposite end of the spectrum, in deals of less than US$100m," explains Steger.

Two top 10 deals hinge on growth of smart mobility

Two of the top 10 deals, totaling US$9.7b in aggregate value, resulted from the growth of smart mobile devices. One involves internet and mobile video technology, which the acquirer plans to integrate throughout its line of business, consumer and entertainment products. In the other deal, a provider of communications equipment to public networks is acquiring a company whose software helps fixed-line and mobile networks operate more efficiently — thus enabling them to better manage the increasing bandwidth demands placed on them by smart mobile devices.  

US$10.9b in two semiconductor consolidation deals

The report notes that two top 10 deals represent US$10.9b in semiconductor sector consolidation. These include a US$6.1b deal bringing together two analog chip makers and a US$4.8b deal between two makers of semiconductor manufacturing equipment. The latter deal involves gear for making high-efficiency solar energy chips.

Cloud computing and SaaS continue to drive large and small deals

The report notes that 2Q 2011 marked the second consecutive quarter in which telecommunications network operators acquired data center operators specializing in cloud services. One such deal, valued at US$2.3b, was among the quarter's top 10. However, cloud computing and software as a service (SaaS) deals were pervasive across the computing spectrum in 2Q. Selected examples described in the report include a hardware maker that purchased technology to make its servers more cloud-capable; an enterprise applications software company that purchased technology to help it build cloud-based versions of its software; and a middleware software company that purchased cloud-based software that can add social media functions to existing enterprise applications.

Cross-border deal volume and value grows faster than in-border

2Q 2011 data also shows the growth of cross-border (CB) deals in both volume and value. CB deal volume in 2Q 2011 was 16% higher sequentially, compared with an 11% decline in in-border (IB) deals, and 32% higher than the year-earlier quarter, compared with a 19% increase for IB. At US$24b, the aggregate value of CB deals was 46% of the aggregate value for all 2Q 2011 deals (CB + IB), up from 40% in 1Q 2011 and for all of 2010. The report suggests that increasing globalization and the growing volume of "overseas" cash stockpiled by US-based companies may be behind the increase in CB deal-making as the US acquired 56% of all CB value acquired.

Overall, deal volume for the quarter increased 24% year-over-year (YOY) to 777 deals, but declined 2% sequentially from 794 deals in 1Q 2011. It was the first sequential quarterly decline since 1Q 2009.

Continued strong outlook for 2011 M&A

Given a strong first quarter start to the year and the unleashing of big-ticket deals in 2Q 2011, there is increasing momentum behind global technology M&A transactions heading into the second half of the year. In addition, technology continues to influence the development of the entire global economy, as information technology evolves into an increasingly valuable component of all products and services.

Moreover, technology companies continue to stockpile cash, which gives them the flexibility to act when strategic M&A opportunities arise. In aggregate, the cash and investments held by the sector's top 25 companies (as defined in the report) grew to US$591b by the end of 2Q 2011 — an 18% YOY increase from US$499b at the end of 2Q 2010. "After the first quarter M&A results, we saw the potential for a big year for technology M&A in 2011, but we were concerned over increasing divergence between buyers and sellers over valuation, geopolitical unrest, the continuing US debt ceiling and government spending debate, global debt issues and other unforeseeable possibilities. Yet all these hurdles were overcome to produce a very robust second quarter. The big question is whether deal-making will continue to overcome these macro obstacles or take a pause in the second half," Steger concludes.

About the report

Global technology M&A update, April – June 2011 is based on Ernst & Young's analysis of FactSet Mergerstat data for April through June 2011. FactSet Mergerstat data was last accessed for this second quarter report on 6 July 2011. Deal activity and valuations may fluctuate slightly based on the date that the FactSet Mergerstat database is accessed. Only disclosed value deals are used in all value analysis.  Full report is available at www.ey.com.

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SOURCE Ernst & Young