Mergers and acquisitions (M&As) in the technology sector continue on an upward trend in 2017, although at a slower pace. For purchasers this could translate into growing component obsolescence or it could mean a chance to negotiate better pricing for more products from fewer suppliers.
Global M&As in the first half of 2017 increased 8.4 percent by value, although there were 1,117 fewer deals compared to the same period last year, according to Mergermarket’s Global M&A Trend Report. Transactions in the first half of 2017 totaled $1.49 trillion for 8,052 deals, compared to $1.38 trillion with 9,169 deals in 1H 2016. Technology tallied the largest deal count – 447 deals worth $43.5 billion, with software M&A leading the pack.
Software deals accounted for 74.5 percent of the technology segment’s overall activity and 61.6 percent of the sector’s total value. Deals span cloud computing, cybersecurity, fintech, and autonomous vehicles.
“Companies have been 'future-proofing' in the wake of rapid changes to technology and politics to keep ahead of rivals,” according to Mergermarket, an Acuris company.
Megadeals (> $10 billion) remained stable with 17 in 1H 2017 compared to 16 in 1H 2016. However, there were some changes by region. The share of global value dropped in the U.S. and Asia Pacific (excluding Japan) to 40.4 percent and 18.3 percent, respectively, in 1H 2017 from 42.8 percent and 21.3 percent, respectively, last year. However, M&As in Europe grew to 32.3 percent share.
In the third quarter of 2017, the total value of deals in the “Technology, Media & Telecommunications” (TMT) sector dropped by nearly 25 percent to $299.5 billion, compared to $391.1 billion during the same period last year. However, the deal count remained stable at 2,370 transactions, while most other sectors experienced a decline in deals.
The TMT sector was driven by technology transactions while Media and Telecom “struggled to reinvent themselves in a rapidly digitizing world,” said Mergermarket.
A key finding in the TMT Q3 Trend Report indicates the technology sector is readying for a “robot” revolution. Softbank’s CEO Masayoshi Son (and billionaire investor) launched Vision Fund last year and has spent $93 billion to buy stakes in leading edge companies. The investments span medical testing, autonomous vehicles, artificial intelligence and robotics.
Softbank deals cited in the report that have closed over the last few months include a $250-million bid with Accel for messaging platform Slack, a $114-million bid with Qualcomm Ventures for autonomous robot company Brain Corporation, an undisclosed consortium bid for an indoor farming start-up Plenty, and an acquisition of U.S. cyber-defense company Cybereason, also for an undisclosed amount.
Most of SoftBank’s bids are part of various consortia with combined stakes worth $22 billion, said Mergermarket.
In the semiconductor segment, there have been some trouble spots. Toshiba agreed to sell a 59.8 percent stake in its microchip unit for $10.6 billion to a consortium led by Bain Capital. However, Toshiba’s SanDisk joint venture partner Western Digital is seeking to block the transaction.
Regionally, China has faced roadblocks in its attempt to buy U.S. semiconductor companies. The latest deal blocked by President Trump was China-backed, U.S.-based Canyon Bridge Capital Partners’ $1.2 billion takeover bid of Lattice Semiconductor. However, Mergermarket finds that Chinese firms have signed deals to buy 48 U.S. companies across all sectors, valued at $7.2 billion. Four are in the semiconductor segment worth $1.2 billion.
IC Insights reported that semiconductor M&As have slowed in the first half of 2017. The total value of about 12 transactions totaled $1.4 billion. This compares to $4.6 billion and $72.6 billion in 1H 2016 and 1H 2015, respectively.
“The big difference between semiconductor M&A activity in 2017 and the prior two years has been the lack of megadeals,” said IC Insights. “Thus far, only one transaction in 2017 has topped a half billion dollars - MaxLinear’s $687 million cash acquisition of analog and mixed-signal IC supplier Exar announced in March 2017 and completed in May.”
By region, APAC deals in the TMT sector set a regional record of a 35 percent share by value in the first three quarters of 2017, according to Mergermarket. The 515 deals valued $103.4 billion, which included three out of the top five transactions globally in the period.
The U.S. led in global TMT deals with a 43 percent market share that is valued at $127.9 billion for 892 deals. Europe followed with 813 deals valued at $47.4 billion, translating into a 16 percent share in value.
Looking ahead, Mergermarket forecasts more investments in the fintech market in Central and South America, the space tech industry, and companies involved in cyber security, intelligence and navigational capabilities. Other potential areas of investment include tracking, delivery and payment processing services.
Private equity is expected to drive tech M&As over the next few quarters, according to a survey conducted by Merrill Corp. The survey of industry experts and 650 dealmakers finds that 74 percent of respondents believe that private equity’s increased technology M&A has increased deal volumes and valuations. The report also revealed that 55 percent of respondents expect a “modest” increase in tech sector M&A activity over the next two quarters.