Technology M&A to Hit Highest Level Since 2000 Next Year
M&A activity in the technology sector is expected to rise to US$415 billion in 2018 – the highest level since 2000 – as transformations within the sector continue and the emergence of disruptive cloud, mobile, social and Big Data analytics technologies, drive deal making, reveals a new forecast by Baker McKenzie published in association with Oxford Economics.
According to the Firm’s second Global Transactions Forecast report, technology enjoyed a burst of activity in 2016, with M&A values rising to US$371 billion, up from US$350 billion in 2015, reflecting the ongoing strength of deal making in traditional technology, and new technology’s increasing reach across the wider economy. The Forecast predicts a flat year for 2017 with activity dropping to US$338 billion, however Paul Rawlinson, the Firm’s global chair expects the market to pick up: "We are clearly still in volatile times but deal-making is there to be done. Strong corporate balance sheets, cheap finance and moderate growth across markets and key sectors all point to an improving M&A run-rate later in 2017, after a cautious first quarter, and a significant uptick in 2018. The caveat is we need a benign Trump on trade and a soft-ish Brexit. Will we get that? Let's see."
Source: Baker McKenzie and Oxford Economics
The strength in traditional technology was witnessed by the number of megadeals throughout 2016, including Avago Technologies' US$38 billion takeover of chip manufacturer Broadcom, Western Digital's US$16 billion acquisition of storage manufacturer SanDisk, and the US$10 billion takeover of Chinese software firm Qihoo 360 by private investors.
Meanwhile, activity in new tech is booming, with a wider range of non-tech buyers aiming to innovate through acquisition and as acquirers seek global expansion.
According to Anne-Marie Allgrove, Global Chair of the Baker McKenzie Global TMT Industry Group, the rise of M&A activity in the tech sector can be attributed to a number of factors: “Technology is an environment with innovation at its heart. Innovation drives M&A activity as companies look for the skills and intellectual property to grow, and be at the forefront of innovation. We have seen innovation in the cloud, wireless and analytics sectors over the last few years and now we are really starting to see the emergence on a competitive scale of a new wave of innovative technologies, such as artificial intelligence, robotics and the Internet of Things.”
“With all the signs pointing to a market that will grow rapidly in 2018, the cutting edge and exponential growth nature of technology means that the sector is currently on a high, enjoying a period of substantial activity that is resulting in a major uptick in the number of well-structured deals being completed, with the sector concurrently exhibiting no obvious signs of being curtailed.”
Matthew Gemello, M&A partner at Baker McKenzie, added: “Technology companies, and traditional businesses with increasing tech focus, will be active buyers in the global M&A market in 2018 and beyond, as innovation and competition for talent continue to spur future growth and industry expansion. While core strategic expansion will continue to drive M&A activity, global companies are increasingly searching for new tech capabilities and service offerings to supplement existing portfolios.”
Competition within the telecommunications industry is fuelling M&A, albeit at a slower pace than in previous years. Telecoms M&A activity dropped to US$130 billion in 2016, down from US$304 billion in 2015, which was exaggerated by the merger of Altice SA with Altice NV for an estimated US$145 billion in 2015.
Anne-Marie Allgrove concludes: “Setting this deal aside, the slowdown in telecoms M&A was modest compared to the global slowdown, and prospects for a gradual strengthening of deal making are good. Companies that are changing gears to focus on mitigating churn and expanding service offerings will help drive interest from outside the sector.”