After a buying spree in 2014, technology deals in the first quarter of 2015 signal a return to the middle market amid the decline of megadeals and deal values, according to PwC's US Technology Deals Insights Q1 report. Looking ahead in 2015, the big deals with the highest growth potential are expected to be in enterprise software, data center systems, and cloud offerings. PwC expects longer term momentum in technology deals to continue in 2015.
In the first quarter of 2015, there were 73 technology deals valued at $22.3 billion, which is 20 percent lower in value compared to the first quarter of 2014, according to Deal Insights. However, it is a nine percent increase over the 67 deals during the same quarter. The average deal value totaled $305 million, a 27 percent decrease from $415 million in the first quarter of last year.
In the quarter, five megadeals (deals valued at more than $1 billion) closed, which is a decrease from the average nine megadeals that occurred each quarter over the past 12 months, resulting in a lower overall average value. The five closed deals include:
- Publicis Groupe’s $3.5 billion acquisition of Sapient Corp., a business, marketing and technology integration services company.
- Infineon Technologies’ $3.0 billion acquisition of International Rectifier, a power management semiconductor manufacturer.
- Cypress Semiconductor’s $1.7 billion acquisition of Spansion, a semiconductor manufacturer of flash memory and other specialized products.
- The $1.3 billion acquisition of Siemens’ health information technology business unit, by Cerner Corp., a healthcare IT services company.
- The $1.1 billion acquisition of TASC, a US-defense IT services and engineering provider, by Engility, also a USdefense services firm.
"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, in a statement. "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."
The report also reveals eight deals, many in the high-tech sector, in excess of a billion dollars that have not closed yet. These include:
- NXP Semiconductor’s $11.3 billion acquisition of Freescale Semiconductor, a manufacturer of microcontrollers and digital networking processors.
- CommScope’s $3.1 billion acquisition of the Broadband Network Solutions business unit of TE Connectivity.
- Hewlett Packard’s $3.0 billion acquisition of Aruba Networks, a wireless networking company.
- The $2.4 billion acquisition of Advent Software, a provider of software products and services, by SS&C Technologies, a financial software provider.
- Bain Capital’s $2.4 billion acquisition of Blue Coat Systems, a provider of enterprise security solutions. Expedia’s $1.3 billion acquisition of Orbitz Worldwide, a global online travel company.
Although software was the most active sector at 26 transactions closed with an aggregate deal value of $3.5 billion, reported PwC, hardware acquisitions fell to the lowest level since early 2013 with deal volume and values declining by 36 percent and 89 percent, respectively, in the first quarter.
In addition, consolidation continued in the semiconductor sector. Deal values more than doubled primarily due to Infineon Technologies’ $3.0 billion acquisition of International Rectifier, and Cypress Semiconductor’s $1.7 billion acquisition of Spansion, but volume remained flat, according to the report.
Among many of the semiconductor deals, the acquisitions were made to get a faster route into the Internet of Things (IoT) segment. Mergers and acquisitions in 2015 related to the IoT total $14.8 billion to purchase 39 IoT-related companies, exceeding $14.3 billion spent on 62 companies in 2014, according to a new 451 Research report. The largest deal was NXP’s $11.8 billion acquisition of Freescale Semiconductor.
The PwC report also reveals that there were five technology IPOs in the first quarter with $1.3 billion in proceeds. This is down from 13 IPOs in the first quarter of 2014 and an average of 15 IPOs per quarter in 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,” according to PwC.
Due to the strong U.S. economy and dollar, U.S. buyers led cross-border deal activity in the first quarter with investments in Europe, said PwC. “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.”
"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," stated 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."