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Another blockbuster quarter for global technology M&A value

By Rob Starr, Content Manager

EY’s latest Q3 technology M&A report finds both tech and non-tech organizations being disrupted by innovative digital technologies looking to M&A to keep abreast of digital transformations. The result was another  blockbuster quarter for global technology M&A value.

High water marks include  deals focusing on smart mobility, advertising and marketing technologies. These  quadrupled YOY in disclosed value, rising 305% and 333%, respectively.

Jeff Liu, Global Sector Head, Technology – Transaction Advisory Services, for EY, answered some of our questions via email.

It’s been a blockbuster quarter for global technology M&A value. How do deals targeting smart mobility, advertising and marketing technologies factor in?

Disruptive technologies such as cloud computing, smart mobility and big data analytics continued to drive business transformation in 3Q16. And that caused large incumbent tech companies to pursue big-ticket acquisitions and divestments as they pivot to embrace new business models and customer experiences.

Deals targeting smart mobility, and advertising and marketing technologies each quadrupled YOY in disclosed value.

Three big-ticket deals spurred advertising and marketing technology targets to $11.7 billion in 3Q16 disclosed value, more than four times the $2.7 billion we noted in 3Q15. YTD value of $18.8 billion is 77% higher than YTD 2015.

What role do the deals pertaining to security play?

Five big-ticket deals led security value to $16.9 billion in 3Q16, more than seven times higher than 3Q15. In fact, it’s higher than YTD 2015 ($16.2 billion), and YTD 2016 security value of $32

Jeffrey Liu

Jeffrey Liu

billion nearly doubles that amount. Among the largest 3Q16 deals were two PE buyouts of divested business units: Intel Security (formerly known as McAfee) and Safran’s identity and security business. Micro Focus’ deal for HPE’s software unit also included security technology. Security volume, however, fell 25% YOY to about 55 deals.

What were the large incumbent tech companies up to?

Large incumbent tech companies pursued big-ticket acquisitions and divestments in 3Q16 as they pivot to embrace new business models and customer experiences.

Divestitures by large incumbents caused disclosed value for the quarter to more than double over the two preceding quarters. Fewer companies divested potential “hidden gems” in 3Q16 but their disclosed value more than doubled to $39.4 billion.

How are the non-tech companies making a difference?

Non-tech-buyer value more than tripled YOY in 3Q16 to $55.2 billion — higher than full-year 2015.

Of the 135 deals in 3Q16 with non-tech buyers, almost 30 targeted advertising and marketing technologies, more than any other technology besides cloud computing (which along with smart mobility continues to be a kind of “background radiation” for global technology dealmaking).

More than 20 non-tech-buyer deals targeted big data analytics, nearly 15 targeted payments and financial services technology and more than 10 targeted health care information technology (HIT).

What are the other key drivers of M&A this quarter?

Whether induced by cloud computing, smart mobility, IoT or big data analytics, tech and non-tech companies continued pursuing transformational deals — often to build broader end-to-end solutions in response to customer demand (the theme we call stack to solution).

Hidden gems. Ten divestitures rose above $1 billion, as tech companies also pursued transformation by sharpening their core focus.

Deals targeting technologies that contribute to the reinvention and rapid evolution of digital customer experiences were prevalent, from customer support technologies to warehouse automation that helps satisfy customers’ growing demand for faster delivery.

Growth-seeking geographic expansion sparked a peak in cross-border dealmaking targeting US companies and record- breaking overseas M&A overall. What’s more, results of EY’s October 2016 Capital Confidence Barometer survey suggest the trend will continue: 70% of responding tech executives say they’re likely to pursue cross-border deals in the next year.

What’s in the future?

Rather than allowing geopolitical uncertainty and equity market volatility to slow dealmaking, global technology M&A buyers appear to be “rolling with the punches” in 2016. Technology is in such a state of rapid evolution, and tech and most other industries are so deep into disruptive digital technology transformations, that buyers know they can’t wait for markets to smooth themselves out. Instead, tech dealmakers — whether tech incumbents, non-tech buyers or PE — seem to be watching for the opportunities that market volatility sometimes creates, and are ready to make deals when it does.

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