Technology Deals Return to Middle Market in 2015, According to PwC US

Technology M&A on Pace for Long-Term Momentum

May 21, 2015, 09:00 ET from PwC US

SAN JOSE, Calif., May 21, 2015 /PRNewswire/ -- Following the record-breaking buying spree of 2014, the first quarter of 2015 is signaling a return to the middle market with technology deal volume remaining active amid the decline of both megadeals and deal values, according to PwC's US Technology Deals Insights Q1. Strategic buyers led the way while private equity remained active on both the buy and sell side.

"Despite the mixed results of the first quarter, technology M&A momentum continues apace with a healthy flow of middle market transactions among enterprise software, data center systems and cloud offerings," said Rob Fisher, PwC's U.S. technology deals leader. "While some companies paused to realign their near-term goals with competitive market shifts, the top technology companies maintain tremendous war chests of cash in excess of $370 billion providing ample ammunition for strategic acquisitions for the remainder of 2015."

In the first quarter of 2015, there were 73 technology deals with a value of $22.3 billion, according to Deal Insights. This is a decline of 20 percent in deal value over the $27.8 billion in deal value that occurred during the first quarter of 2014 and a nine percent increase over the 67 deals during the same quarter. Average deal value totaled $305 million, a 27 percent decrease from $415 million in the first quarter of last year, which was affected by the decline in megadeals, or those deals valued at more than $1 billion. For the quarter, there were five megadeals that closed, a decrease from the average nine megadeals that occurred each quarter over the past 12 months.

For the quarter there were five technology IPOs, with $1.3 billion in proceeds. This is a noticeable decline over the first quarter of 2014, when there were 13 IPOs and an average of 15 IPOs per quarter throughout 2014. This decrease is potentially a result of competition with growing private markets, wherein would-be newly public companies are able to raise large amounts of capital at high valuations.

PwC finds that the software sector remained the most active, at 26 transactions closed with an aggregate deal value of $3.5 billion. Software M&A volume increased 13 percent, while deal value declined 85 percent over Q4 2014. The number of Internet deals declined 52 percent followed by an 87 percent decline in value compared to the previous quarter, which was skewed by a single large deal in 2014 valued at $22 billion. Additionally, hardware fell to the lowest level since early 2013 as deal volume and values declined 36 percent and 89 percent, respectively, in Q1 2015.

Cross-border deal activity increased during the first quarter, with U.S. acquirers leading by way of investment in Europe. Much of this can be attributed to the strong U.S. economy and dollar.

Divestitures exhibited a slight decline in the first quarter, but continued portfolio pruning is expected to contribute to a healthy level of divestitures throughout 2015. In addition, strategic buyers led the way in the new year while private equity remained active on both the buy and sell side.

"Going forward in 2015, we expect software to continue to play the most prominent role in technology, for semiconductor consolidation to continue and we anticipate an increase in communications equipment activity," added Fisher. "While appearing slower at first glance, 2015 has started off the year highly active and has set the stage for another interesting year in the technology sector."

PwC's US technology Deals 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 December 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 helps corporate and financial sponsors achieve their growth initiatives and optimize deals from strategy through value capture. PwC's Deals professionals support clients on a wide range of transactions including domestic and cross-border acquisitions, alliances, divestitures and spin-offs, capital events such as IPOs and debt offerings, as well as business reorganizations.

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