Tough Tech M&A Scene Has Trendy Bright Spots

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Pressured by a challenging global economy, technology mergers and acquisitions continue their downward, but a few M&A bright spots remain in trending areas familiar to most successful channel players.

Pressured by a challenging global economy, technology mergers and acquisitions continue their downward, but a few M&A bright spots remain in trending areas familiar to most successful channel players, according to a new report. The long-term outlook for M&A activity remains strong, analysts said.

Ernst and Young Global Ltd.’s Technology M&A Update, released yesterday, shows the value of technology acquisitions down 52 percent from last year to a total of $28.2 billion. While disheartening, the report does show continued significant M&A activity among companies focusing on smaller deals driven by trends in mobility, cloud computing, social networking, health care and Big Data.

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In fact, both the volume and value of cloud and software-as-a-service (SaaS) deals remained significantly higher than any other deal driver in the last quarter. Mobile and e-payment technologies and health care IT also surged in value in the same period while social networking deals fell in value, but remained about equal in volume, the report found.

"Once again, the macroeconomic environment is challenging technology M&A. But unlike after the global downturn that began in late 2007, when deal values and volume both fell hard and fast, volume continues to grow, at least a little," said Joe Steger, practice leader for Global Technology and Transaction Advisory Services at Ernst and Young. “This is a real testament to the spreading strength of the social-mobile-cloud and big data analytics megatrends.”

Steger points out that deals related to the evolution of data center technology required meet the rigors of cloud computing, mobility and Big Data continue to rise despite the stagnant global economy.

“These are major forces and they are still driving technology company transactions. So, we'll continue to see many smaller strategic technology deals, and caution around executing large transformative deals until macroeconomic conditions and confidence improve. But the long-term outlook for global technology M&A remains strong.”

As part of the study, Ernst and Young surveyed 1,500 global executives and found both waning confidence in a global economic turnaround and a widening gap between buyers and sellers in potential M&A valuations. Forty-five percent of technology respondents expect M&A valuations to decline over the next 12 months compared to just 21 percent who held that view six months ago. The pessimism is balanced, however, by the fact that many companies still have a cache of funds they’ll want to use in the short term to make investments in what they consider innovative technologies.

"While most of the ingredients necessary for a deal recovery remain in place – plentiful cash reserves, adequate credit availability and transformative technologies – one element remains elusive: economic confidence. Without it, the M&A market will continue to be constrained by conservatism. This is especially true for larger deals," said Steger.

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