Semiconductor M&A Accelerates in 2019
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Just about every tech startup aspires to a high-value IPO or an acquisition by a larger company. The first half of 2016 wasn’t hospitable for technology, media and telecom (TMT) M&A, according to a report released by Mergermarket. In fact, H1 2016 M&A activity in TMT was the lowest it’s been since 2013.
The TMT sector has experienced a “rebalancing” compared to the record M&A activity seen in 2015, Mergermarket said. During H1 2016, 1,363 deals worth $223.1 billion represented a 41.6 percent decrease in value compared to H1 2015 ($382.3 billion; 1,580 deals), and the weakest H1 deal value and count since 2013. Reflecting this low activity, no megadeals (<$10 billion) took place within the sector during H1 2016.
The telecommunications sector seems to be feeling the effects of an increasingly saturated M&A market, Mergermarket finds. The sub-sector saw just 78 deals worth $27.1 billion during H1 2016, plummeting 82.4 percent by value compared to H1 2015 ($154.1 billion; 100 deals).
Regionally, Europe suffered the largest fall in technology M&A activity during H1 2016 and will likely be negatively affected in the future by Britain’s vote to leave the EU. “A period of political turmoil could potentially lead to a slump in activity for UK Tech M&A, particularly within London, which has been established as a hub for [financial technology] investment,” the report said. In the U.S., pharmaceutical, medical and biotech deals dominated M&A activity in the first half. One tech company that is buying in the healthcare vertical is IBM: in February IBM Watson Health announced it had acquired Truven Health Analytics, a company that offers information and analytic tools to the healthcare sector, for $2.6 billion.
Still, analysts fully expect momentum to pick up. The move to the cloud and mobile, new operating systems, security risks and limited VC funding are having a considerable impact on all areas of technology. “M&A is an important way to adapt to these changes, and as tight credit markets loosen up and public equity markets come back to life, there is ample room for deal momentum to continue,” Mergermarket said.
Apple is looking for potential acquisition candidates, the report noted, and is willing to pursue a larger deal than it has undertaken previously. A report by Mergermarket in January noted that Apple’s sizeable cash position meant it was poised to remain an active player in the M&A space and could be tempted to deploy some of its capital on larger-size deals in 2016.
Unicorns - startups with billion dollar valuations - are expected to be acquired in greater numbers later this year thanks to a drop in their valuations, the report concluded. Last year, many unicorns raised capital at valuations ahead of what they could attain in a public listing according to David Locala, managing director and head of global technology M&A at Citi. That has started to reverse, with startups more commonly raising capital at a discount to where they would be if public, he said. Now, if startups need to raise capital their investors may prefer a sale rather than doing a down round. “I expect more private deals at more reasonable valuations,” Locala said.
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