NewsStrategy

Smart mobility, software-as-a-service (SaaS), big data, online video and the changing character of social networking have driven the deal volume of merger and acquisitions (M&A) in 1Q12.

In the first quarter of 2012, the aggregate deal value of global technology M&A fell 12% year-on-year (YOY) to US$25.1 billion.

This was only half the value decline of M&A in all industries, as ongoing economic uncertainty continues to take its toll on global deal-making. Private equity (PE) deal values for technology, meanwhile, climbed 171% YOY in 1Q12, despite falling significantly in all industries, according to Ernst & Young's "Global technology M&A update: January-March 2012" report.

The total volume of announced 1Q12 deals was 756 (counting both disclosed- and non-disclosed-value deals), up just one percent from 748 in 1Q11. Quarterly deal volume appears to have reached a plateau after two years of strong growth in 2009 and 2010 -- for the last five quarters the number of deals has ranged from a low of 722 to a high of 756. 

Joe Steger, Global Technology Industry Transaction Advisory Services leader at Ernst & Young, said: "Even though technology M&A activity is down YOY, it's doing a lot better than M&A in other industries. During the first quarter of 2012, the same disruptive megatrends that have been fueling global technology M&A since 2009 are now sustaining technology M&A against the continuing macroeconomic pressures that are holding back other industries. And the long-term outlook for technology M&A remains positive because those megatrends represent the driving force of disruptive innovation that is revitalizing and reshaping the technology industry."

Steger was alluding to five long-term megatrends that are generating disruptive innovation in technology and leading to technology-enabled innovation in other industries. They are smart mobility, cloud computing, social networking, big data analytics and a growing sense of "blur" and convergence, as technology sectors come together and the technology industry enters other industries as enabling innovation. In addition, all five megatrends are driving increased information security requirements.

Though the 1Q12 technology report details many influential deal-driving factors, the biggest increases in transaction volume came from deals targeting online video technology and SaaS companies. These also generated the largest deals of 1Q12 by dollar value. These were a US$5 billion transaction targeting technology that can relay video to mobile devices and a US$2 billion deal targeting a provider of workforce management SaaS. In China, meanwhile, the country's largest video website announced a US$1.1b agreement to acquire its chief rival. 

At the same time, a multitude of smaller transactions demonstrated that both online video and SaaS deal-driving trends have widespread strength, according to the report. Similar deal volume strength was seen in mobile applications, healthcare information technology, advertising/ marketing technologies, patents, social networking and big data analytics deals. 

Ernst & Young's "Global technology M&A update: January-March 2012" report notes that the increasing importance of intellectual property (IP) caused transactions targeting patents to grow in 1Q12.

Social networking transactions also seemed to change in character, as post-IPO companies appeared to focus on acquiring strategic mobile technologies instead of talent acquisitions or geographic expansion, as they previously did. 

Despite a typical fourth-to-first-quarter dip, the report shows that the YOY value of disclosed PE deals soared 171% to US$5.8b, mostly in three big-ticket deals. This continues a three-year PE growth trend. The 1Q12 report describes how the increasing reliance on technology of companies throughout the economy, combined with the developing maturity of technology companies themselves, is attracting more PE companies to technology transactions. Increasing PE activity is changing the global technology M&A landscape by increasing the competition for deals and by providing better exit opportunities for corporate divestiture of non-core assets, according to the report.