There is not much confidence in the global economy right now. Just as anyone with uncertain finances is hesitant to make large purchases, so to are technology companies.
Ernst & Young released its report on global technology merger and acquisition deals for quarter 3 today. The total value for all M&A deals fell dramatically by 52%, from $58.3 billion in Q3 of last year down to $28.2 billion this year. This quarters largest deal was the smallest number 1 deals since thee beginning of 2009. However, the number of total technology deals remains stable which means that companies are conducting smaller, more strategic deals.
“In order to do a large technology deal, you need to have confidence,” said Joe Steger, head of Global M&A and Transaction Advisory Services Leader at Ernst & Young. “In light of global macroeconomic issues like the Euro zone crisis, the fiscal cliff, the U.S. Presidential election, there is a lot of uncertainty which make investors and buyers of large companies stay on the sidelines.”
The top ten global deals from July to September 2012 were:
- Dell Inc. acquired Quest Software, Inc. $2.559 billion
- Micron Technology, Inc. to acquire Elpida Memory, Inc. $2.517 billion
- The Blackstone Group LP to acquire Vivint, Inc. $2 billion
- Roper Industries, Inc. acquired Sunquest Information Systems, Inc. $1.415 billion
- IBM Corporation to acquire Kenexa Corporation $1.361 billion
- VMware, Inc. to acquire Nicira, Inc. $1.26 billion
- Thoma Bravo, LLC acquired Deltek Inc. $987 million
- One Equity Partners LLC acquired M*Modal, Inc. $840 million
- Syniverse Technologies, Inc. to acquire MACH S.a.r.L $696 million
- Cielo SA acquired Merchant e-Solutions, Inc $670 million
The primary drivers of the activity this quarter reflect “megatrends” occurring in the technology industry. Most of the deals were to procure technology that manages large amounts of data in virtual or cloud environments, as well as for software-as-a-service. Payment technology, smart mobility, social networking, and big data were also a focus.
The report states that deals in these areas will continue to close as companies seek to remain competitive by evolving quickly and adopting new forms of technology that optimize efficiency. Large infrastructure acquisitions, on the other hand, will likely remain on the sidelines until economic confidence picks back up. Steger said that another contributing factor to the declines in this area is a misalignment between buyers and sellers regarding alignment.
“It’s like in the housing market,” he said. “If buyers believe values of the property will continue to go down, they will hold off on purchasing. A study we did on tech capital confidence indicated that 25% of respondents expect valuations to decline. Once the sellers realize deal valuations have gone down, we may see a pick up in deal value in upcoming quarters.”
Cross-border deal value declined by 40% this quarter. Despite major declines, Steger said the fact that value, but not volume, made a downturn means that the long-term outlook for global technology M&A remains strong. Companies may not be buying the proverbial mansion, but they are investing in technology that will enhance their operations over time.