Global Tech M&A Activity Characterised By More Deals But Lower Valuations In 2012

Following two consecutive years of substantial growth in merger & acquisition (M&A) activity in the global information and communication technology (ICT) sector, 2012 produced a more mixed set of results. According to a new study from International Data Corporation (IDC), deal volume saw double-digit gains in 2012 while deal valuations experienced a sharp decline and initial public offerings (IPOs) were nearly flat.

The total number of deals topped 3,800 in 2012 and registered a solid gain of 14.2 percent year over year, although the quarterly trend showed deal volume slowly declining over the course of the year. In contrast, the value of disclosed deals fell more than 10.8 percent year over year in 2012 to $211.0 billion, but displayed steady improvement on a quarterly basis as the year progressed.

“The opposing trend between deal volume and deal value is not surprising,” noted Ryan Patterson, Manager, Global IT Advisor and Private Vendor Watch Service at IDC. “In a slow economy, we typically see an increase in the number of deals, and lower values, driven by “fire sales” of troubled companies, an increase in asset sales by companies refocusing on their core business, and acquisitions by private equity (PE) firms looking to capitalise on lower valuations. All of these trends were prominent in the recession years of 2008-2010. The current levels of M&A activity are far from what was experienced during those gloomy years and there are plenty of reasons to believe that the market will maintain a healthy pace in the months ahead.”

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Highlights from IDC’s 2012 global technology M&A analysis include the following:

PE-backed M&A activity soared in 2012, totalling 230 deals compared to 180 in 2011, a 27.8 percent increase year over year. The total disclosed value of PE-backed deals reached $43.0 billion in 2012 compared to $39.2 billion in 2011. In addition, PE firms were involved in 17 billion-dollar-plus deals – almost a third of all deals in this range.

The enterprise applications market accounted for the largest portion of disclosed deal value, with approximately $50.5 billion worth of deals in 2012. This was achieved despite a year-over-year decrease of more than 11 percent in disclosed enterprise applications deals. Mobile deals was the second largest area of activity with $40.1 billion in disclosed deals, more than half of which came in the Softbank acquisition of Sprint-Nextel, followed by telecom deals ($33.0 billion) and Internet deals ($27.5 billion).

The most active buyer in 2012 was Constellation Software with 18 deals, carried out mainly in various vertical applications markets through its fully-owned subsidiaries. After two consecutive years at the top of the most active buyers list, Google slipped to second with 17 deals in 2012. Facebook was number 3 on the list with 15 acquisitions, followed by Intel and Publicis Groupe with 12 each.

On a geographic basis, the United States remained the main market for tech M&A activity with more than 2,200 deals in 2012. The share of U.S. M&A activity in terms of disclosed deal value was $132.8 billion or 65.3 percent of the worldwide total.

Despite early optimism for the IPO market, with 17 companies going public in the first quarter of 2012, the year ended with a total of 43 public debuts, just a few better than the 39 IPOs in 2011. Although the total amount raised in 2012 IPOs reached a staggering $21.1 billion, this total is almost entirely attributable to Facebook’s IPO in May.

“One of the most important opportunities to surface in 2012 was the emergence of the 3rd Platform, built on the four pillars of cloud, mobile, Big Data, and social technologies,” said Dan Yachin, Research Director, Emerging Technologies, IDC EMEA. “As companies move to invest more heavily in these technologies for the future, there was a burst of M&A activity as vendors sought to position themselves for this critical shift in the market. IDC tracked 710 deals – 18.6 percent of all M&A deals in 2012 – associated with the four technologies that constitute the new platform. IDC expects the 3rd platform will continue to be an important driver of M&A activity going forward, helping to push activity levels on an upward trend again.”