- Cloud and smart mobility drove 42% of technology dealmaking
- Payment and financial services technology recorded the highest average deal values
According to EY's Global technology M&A update: April-June 2014, after an extraordinary first quarter, 2Q14 aggregate deal value rose to US$52.4b, a 57% year-on-year (YOY) increase. In addition, 2H14 saw US$119b in disclosed value, which was 70% higher than 2H13. However, compared to the first quarter of 2014, value declined 21% in 2Q14.
Jeff Liu, Global Technology Industry Transaction Advisory Services Leader, Ernst & Young LLP, says:
"Global technology M&A is on course for a blockbuster year in 2014. Technology companies are cash rich, and interest rates are low. Moreover, rapidly changing technology continues to create many new opportunities and so far in 2014, equity markets have remained resilient, exhibiting low volatility despite growing geopolitical unrest. That reinforces executives' confidence in the global economy and, in M&A, makes it easier for buyers and sellers to agree on valuations. Cloud/Software-as-a-Service (SaaS) and smart mobility continued to drive 2Q14 technology deal-making, together accounting for more than 42% of volume for the quarter."
The bigger story, however, is the continuing growth of payment and financial services technology, which experienced the highest average value among 2Q14 deal-making trends. In volume, financial technology saw approximately 60 2Q14 deals, which was more than 50% higher than its 2013 quarterly average. In total value, financial technology registered US$8.7b in 2Q14, which was 141% higher than its 2013 quarterly average.
Deal volume in the second quarter rose by 39% YOY and 15% sequentially to 872 deals, setting a second consecutive new record for the 6.5 years since EY began producing these reports. This was the fourth consecutive quarterly volume increase. At 806 deals, corporate volume also experienced its fourth consecutive increase, up 17% sequentially and 41% YOY.
Private equity (PE) volume (66 deals) declined 6% (4 less deals) sequentially after five consecutive quarterly increases, but increased 16% YOY. Similarly, PE aggregate value fell well below recent levels. At US$5.9b, it was down 55% sequentially and 58% YOY. Average value of PE deals was US$266m, down 41% sequentially and 58% YOY — the lowest level in three years.
Trends and deal drivers
Financial technologies grew significantly as a target, especially for point-of-sale and mobile payments.
As an indication of the depth of the healthy M&A environment, deal values increased across a broad swath of subsectors. Cloud/SaaS; smart mobility; big data analytics; security; advertising and marketing; storage; education; and collaboration technologies all increased in volume faster than the overall market.
Total average deal value declined 24% sequentially and 7% YOY to US$231m, but for a relatively good reason: widespread strength at smaller deal sizes brought down the overall average.
"Nothing less than a technology-induced reinvention of all industries has begun, moving toward 'sense and respond' relationships between businesses and their customers and driven by the five transformational technology megatrends: smart mobility, cloud computing, social networking, big data analytics and accelerated technology adaptation", says Liu. "At the same time, macroeconomic conditions are supporting dealmaking with low interest rates, appealing lending terms and stability in equities markets. This confluence of factors will continue to drive record, or near-record, global technology M&A for the foreseeable future."
Looking ahead
Rapid change induced by the five transformative technology megatrends is causing increasing numbers of companies to find themselves at a crossroads — adding to potential acquisition opportunities.
Liu adds: "What I find most encouraging for continuing technology M&A growth is the ongoing strength of mid-priced deals, not just the transformational big-ticket deals. Confidence in the global economy and the force for change of the five transformative technology megatrends clearly is being felt at all company sides. Consequently, transformational, strategic, tactical and bolt-on type deals are all getting done — in abundance."
