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EY Capital Confidence Barometer Highlights Ongoing Technology M&A

By Rob Starr, Big4.com Content Manager

EY’s twice-yearly Capital Confidence Barometer (CCB) came out in May, noting among several high-water marks that the technology sector produced more deals than any other in 2014 and executives have confidence the current surge will extend through the year. Jeff Liu, Global Technology Industry – Transaction Advisory Services Leader for EY, offered his comments on these and other significant takeaways.

“Virtually 100% of the executives said they felt good about the health of the macro economy

Jeffrey Liu

Jeffrey Liu

and the expectation for solid earnings growth is good as well,” Liu said. He added that even though there are and will continue to be “one off” revenue or earnings misses in the tech landscape it is very notable that the general consensus is that the economy is recovering.

Enthusiasm

Statistics show these executives are walking through the technology doors that have been opened with an enthusiasm parallel to the good feeling they have about the economy. For example:

• Fifty eight percent of the technology executives polled expected to pursue acquisitions this year.
• More than three quarters (78%) of those taking part in these deals are planning the kind of acquisition that will change the scope of their business.

Liu also says that other industries recognize that technology has become a tremendous value driver for them and non-tech companies targeting tech companies is another factor spurring healthy M&A numbers.

One of the other trends that we touched on was the reasoning behind planned acquisitions designed to change the scope of businesses. “Many of these acquisitions are much more than incremental or complementary to existing business lines,” Liu offered, saying that EY is seeing deals that will substantially change the revenue models of some buyers. He went on to say these transactions often paired companies that otherwise make strange bedfellows, citing the deal whereby MasterCard acquired Applied Predictive Technologies, going so far as to preempt a potential public offering.

Non-tech companies

That deal exemplifies a trend where some non-tech companies from other sectors looking to acquire tech companies are moving away from transaction-based revenue models toward models where revenue is derived from the information their businesses produce. It’s a trend Liu expects to continue and grow.

Liu points to the cloud as just one of the drivers behind this M&A surge along with multiprocessor power in analytics. “You can actually take all of the data now,” he says, “millions or billions of points and do the analysis on the actual data whereas before business and predictive analysis often extrapolated from a subset.”

“I expect this move to information-based revenue models to be a continuing trend across many verticals,” he says. “The obvious ones are healthcare, and financial services. Moreover, as more and more industries rely on information-based business models, data security protection issues will escalate — and the security industry will turn to technology to find the solutions — continuing the cycle of technology innovation, disruption and acquisition as a means to remain competitive in the new digital economy.”

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