Big Ticket Deals Boost Tech M&A In Q3 2011

Despite a general decline in M&A in other industries, the aggregate value of global technology M&A during Q3 2011 totalled $56.4bn, an increase of 8 percent compared to Q2. Furthermore, data from Ernst & Young’s (E&Y) ‘Global Tech Update’ show that private equity firms contributed more than half of the deals valued above $1bn.
This increase in the value of technology M&A is impressive, especially considering reports that global economic uncertainty and market volatility has led to an 18 percent sequential, and 21 percent year on year (YOY), decline in the value of global transactions for all industries. The aggregate $56.4bn of announced tech deal value in Q3 marks a YOY increase of 22 percent and is the highest total for any calendar quarter since 2007. Moreover, the average value of deals announced in Q3 2011 has increased 26 percent YOY to its highest level in 11 years, rising from $176m in Q3 2010 to $221m.
However, although total deal value has increased, volume remains subdued.
Despite a general decline in M&A in other industries, the aggregate value of global technology M&A during Q3 2011 totalled $56.4bn, an increase of 8 percent compared to Q2. Furthermore, data from Ernst & Young’s (E&Y) ‘Global Tech Update’ show that private equity firms contributed more than half of the deals valued above $1bn.

This increase in the value of technology M&A is impressive, especially considering reports that global economic uncertainty and market volatility has led to an 18 percent sequential, and 21 percent year on year (YOY), decline in the value of global transactions for all industries. The aggregate $56.4bn of announced tech deal value in Q3 marks a YOY increase of 22 percent and is the highest total for any calendar quarter since 2007. Moreover, the average value of deals announced in Q3 2011 has increased 26 percent YOY to its highest level in 11 years, rising from $176m in Q3 2010 to $221m.

However, although total deal value has increased, volume remains subdued.

The number of deals fell by 2 percent for the second consecutive quarter to 759, down from 777 in Q2 2011 and 794 in Q1. Even so, the increase in deals above $1bn overrides this decline in volume. For the first time since Q1 2000, two deals topped the $10bn mark during the third quarter of 2011.
Although down 18 percent YOY, the number of PE tech deals climbed on a quarterly basis through 2011, from 73 to 76 to 81. Furthermore, the number of buyouts in the tech sector rose 86 percent YOY to a total of $14.6bn, highlighting the strong presence of PE firms in this area. Indeed, six of the 11 biggest tech deals announced during Q1 involved private equity firms. The largest of these was the $2.6bn pooling of Hitachi, Sony and Toshiba’s small-panel LCD operations by Innovation Network Corporation of Japan, a PE firm backed by the Japanese government.
In terms of corporate deal data, volume has declined since the beginning of the year, from 721 transactions in Q1, to 701 in Q2 to 678 in Q3, even though the overall number of deals was up 13 percent on the same period in 2010. Similarly, the aggregate value of corporate deals rose 9 percent YOY, but slid 5 percent from $44.2bn in Q2 to $41.8bn in Q3.
A look at cross-border deal data reveals 277 transactions during Q3, accounting for 36 percent of overall activity. Although this figure was down from 40 percent of total deals in Q2, the contribution of cross-border deals in Q3 was still ahead of the 34 percent in Q1 and for all of 2010. Meanwhile, the aggregate value of cross-border deals in Q3 was $21.3bn, or 38 percent of aggregate value, compared with 46 percent in Q2.
The largest deal of the quarter was Google’s $11.9bn pending purchase of Motorola Mobility, announced in August. The deal marks the largest technology transaction since HP purchased Electronic Data Systems Corporation for $12.6bn in May 2008. Motorola Mobility is a provider of set-top boxes to cable companies, and, assuming the deal closes, Google will become a supplier of Android smartphones as well as television set-top boxes.
The need for huge amounts of data has been driving large deals, according to E&Y’s report. Business systems, social networking platforms and smart metering systems are generating an ever-increasing mass of data, and companies are struggling with what has come to be known as the ‘big data’ problem. As most of this data involves customer interactions, technology that helps companies understand it all can provide important information and insight. This is the reasoning behind the second largest tech deal of Q3 2011: Hewlett Packard’s $10.2bn acquisition of UK-based Autonomy, which is expected to strengthen the company’s data analytics, cloud computing and workflow management capabilities.
The third largest deal of the quarter, and also the transaction with the highest premium at 67 percent, was Broadcom’s pending acquisition of NetLogic Microsystems for $3.5bn, announced in September. NetLogic makes a variety of multi-core processors designed to accelerate data transmission in fixed and mobile networks, including 3G/4G mobile wireless infrastructure, cloud and enterprise data centres, and metro Ethernet networks. The deal aims to strengthen Broadcom’s core mobile network offerings.
Finally, the tenth largest deal of Q3 was Electronic Arts’ $1.3bn purchase of PopCap Games. In recent years, EA has been on a steady acquisition trail, transforming itself from a publisher of traditional console games into a multiplatform digital game provider. E&Y points out that although the online games sector sees dozens of deals every quarter, this deal is the first to break the $1bn barrier.

Selina Harrison, January 2012