Led by Analog Devices and SoftBank, high-tech companies have regained their rightful place at the top of the M&A market in 2016. Analog’s acquisition of Linear Technology and SoftBank’s acquisition of ARM – both announced in the third quarter of the year -- were two of the highest-valued deals so far, driving a trend toward fewer but bigger tech acquisitions, according to Mergermarket.
Technology, Media and Telecom (TMT) sector M&A activity picked up in Q3 following a relatively weak H1 2016, with the value of deals experiencing two consecutive quarterly increases. During Q3, 666 deals worth $179.6 billion represented a 39 percent climb in value compared to Q3 2015. Analog Devices spent $12.9 billion for Linear Tech; Softbank acquired ARM for $30.2 billion.
Analysts said that deals that may have been put on hold earlier in the year got the green light in Q3. “The third quarter strength shows that deals that may have been put on hold at the beginning of the year -- due to uncertainties surrounding, among other factors, the outcome of the UK referendum and the continuation of both the U.S. and European ultra-low interest rate policies -- were processed over the summer,” according to the research firm. That said, year-to-date activity (2,168 deals, $403.1 billion) is still 21 percent lower by value compared to the first three quarters of 2015 (2,410 deals, $510.2 billion).
“I think a slowdown was inevitable after the banner year last year,” said Robert Townsend, co-chair of Morrison & Foerster’s Global M&A practice group. Early in 2016 a feeling of general uncertainty was being experienced across the debt and equity markets, he added. Macroeconomic factors, including the UK’s “Brexit” vote and a possible rise in interest rates by the Federal Reserve, affected M&A activity in the tech sector. An increase in interest rates is unlikely to materialize in 2016, Margermarket added.
The surge in technology M&A has been driven by both consolation and innovation-related transactions. According to Mergermarket intelligence, M&A will become a route for tech companies to capture growth in a constrained economic environment. However, TMT M&A activity is expected to remain unpredictable for the final three months of the year. M&A targeting in the U.S. and Europe is anticipated to depend on economic conditions and the U.S. election is likely to curb activity due to the uncertainty surrounding its outcome. China is expected to further pursue its push for acquisitions globally.
Security, financial technology and healthcare computing are three technology sectors that promise the most increase in M&A activity. Players in security will look for add-ons aimed at strengthening the protection of data for core systems rather than moves across perimeter security. South Korea-based cybersecurity developers are seeking acquisition as information breaches increase and demand for their services ramp up, Mergermarket reported. Some are searching for targets domestically while others are looking at overseas markets including Southeast Asia and Japan.
Yet other Korean companies are entering select markets such as mobile computing overseas. In early October South Korean tech giant Samsung Electronics announced it would acquire Viv Labs, headquartered in San Jose, CA. Viv has developed an open artificial intelligence (AI) platform that gives third-party developers the power to use and build conversational assistants and integrate a natural language-based interface into applications and services. The deal showcases Samsung’s commitment to virtual personal assistants and is part of the company’s broader vision to deliver an AI-based open ecosystem across all of its devices and services.
In the financial technology subsector, crowdfunding reacted with relative calm regarding Brexit, Mergermarket found. Brexit may even present growth opportunities for alternative lending players. If the British pound falls further beyond its 30-year low, interest rates will be affected. More people will turn to alternative means of financing rather than banks, Mergermarket said. Moreover, in the UK, crowdfunding platforms fall under the regulatory oversight of domestic rules. They will not be affected by Britain's decision to leave the EU.