Tech Sector Bucks M&A Trend

Although deal activity in general has been down for most of the year, technology deals have been humming along.
David McCannAugust 26, 2010

After a depressed first half of 2010 in the United States and elsewhere, merger and acquisition activity returned to life this month. Last week Thomson Reuters reported that global M&A volume for August had already reached $197.6 billion, the busiest August since 2006 and $77 billion short of the record volume for the month, set in 1999.

Meanwhile, in the technology sector, M&A activity has been humming all year long. The value of U.S. tech deals this year is robust by almost any other comparison, notes PricewaterhouseCoopers. Among deals worth more than $15 million that closed in the first half of 2010, the aggregate value was about $30 billion, the firm points out in a recent report, citing data from Dealogic.

In the sluggish first half of 2009, that figure barely topped $5 billion. The turning point came in the fourth quarter, when deals worth more than $21 billion — almost 60% of the 2009 total — were closed.

The volume in this year’s first half was actually greater than $30 billion because there is a growing trend toward acquirers not disclosing deal values, says PwC. Most of those transactions are of the smaller variety, but there are a lot of them. According to the National Venture Capital Association, in the second quarter alone there were 78 venture-backed technology deals; the value was not revealed for virtually all of them.

In addition, a number of very large companies have made acquisitions that, while big in absolute terms, were still not deemed to have a material impact on the buyer’s balance sheet or income statement and thus went undisclosed.

Tech Deals 2009-10

Among deals with announced values, the total volume has continued to swell in the third quarter, led by SAP’s $5.8 billion purchase of Sybase. An even bigger transaction, Intel’s $7.68 billion acquisition of security firm McAfee, was announced last week and is expected to close by year-end.

By then, aggregate U.S. technology deal value for 2010 stands a good chance to equal the $77 billion figure from 2008, says Todson Page, a partner with PWC Transaction Services. “We’re certainly on a trajectory for this to be a very strong year for M&A in the historical context,” he says.

All of the activity means that in the tech sector, M&A has found a strong footing as an innovation accelerator. Looking at it one way, an M&A strategy may equate to an outsourced R&D arrangement. In other words, Page says, let start-ups try out their ideas, and when they get close to something that’s worthwhile, buy them.

The willingness of technology vendors to move boldly with M&A despite the uncertain economy could influence companies in other industries, Page speculates. “I’m certain there is a psychological impact on CEOs across sectors,” he says, “in the sense that they see these guys aren’t letting the economy slow them down in executing their long-term plans. Should you be thinking more strategically and have a longer-term vision?”