By Rob Starr, Big4.com Content Manager
According to EY’s Global technology M&A update: April-June 2015, technology disruption continues to accelerate as corporate technology buyers seeking broader solutions pushed 2Q15 deals to a record US$127.2b. While the report finds that all categories of buyers contributed to record growth in 2Q15, megadeals by corporate technology buyers fueled the biggest increase. Jeff Liu, Global Sector Head, Technology – Transaction Advisory Services at EY, helped us to understand the highpoints of the report.
How important is the finding that all categories of buyers — corporate tech, non-tech and private equity (PE) — contributed to record growth in 2Q15?
It’s because all categories of buyers – corporate tech, non-tech and private equity – rose in the second quarter that global technology M&A set such a high post-dotcom-bubble record for quarterly aggregate value. But the key takeaway from this phenomenon is that everyone now recognizes the opportunities and threats emerging so rapidly from the continuous waves of disruptive technology and digital transformation in all industries. Technology is driving that disruption, of course, but all companies are realizing they need key digital technologies to lead their industries – or catch up to the leaders.
What’s behind the finding that technology disruption continues to accelerate as corporate technology buyers seek broader solutions?
Tech companies are increasingly looking to M&A to build broader solutions in a phenomenon
we call stack to solution, which is a consequence of a fundamental shift in their customer’s behavior which is driven by the cloud-and-mobile disruption. Cloud solutions give customers the option to hide the technology stack from their view, making the technology someone else’s responsibility. That way, they can focus only on the results of the technology – the answer they seek, or the service they get. Tech companies are responding by building broader solutions so they can deliver end-to-end solutions to the customer, as opposed to offering technology at one or more points along the stack.
How salient is the finding that average value per disclosed-value deal soared to an all-time record, including the dotcom bubble?
It’s a clear indication that the consensus feeling of technology executives is that current tech valuations are sustainable in the context of the transformative growth potential of today’s acquisitions. Even though average value was driven to such a high all-time record by a handful of mega deals, we’ve had far bigger deals in the past; this time, the mega deals combined with strength in midsize deals, between $100 million and $1 billion. My takeaway is that the second quarter’s average value is just one of many indicators telling us just how transformative this round of digital disruption truly is.
What are the other important takeaways?
There are many, which is why we will soon come out with our quarterly in-depth report. Among the most notable is the extraordinary growth in deals targeting key technologies, such as security (which is becoming more important every day), internet of things, health care IT and cloud/SaaS. In the first half of 2015, those four have already surpassed their full-year 2014 totals. Also notable in 2Q15 were the take-private deals, indicating that many tech companies still remain in the crosshairs of activist investors and disruptive startups; and divestiture deals, indicating that tech companies are continuing to pursue portfolio analyses that uncover hidden gems among their business units.
What’s in the future?
What’s in store is more of the same: robust tech M&A. Although I don’t expect third quarter deal making to top the $127.2 billion seen in the second quarter, I do anticipate the tech M&A environment will remain extraordinarily robust. It will mirror accelerating technology disruption and growing “blur” between tech and other industries, the rapid rise of the internet of things and the stack-to-solution phenomenon, increasing divestitures and the growing need to add security to all tech products and services. It will continue to be a great time to be involved in technology M&A.