E&Y expects tech deal slowdown in 2012

Growth in mergers and acquisitions activity by technology companies will slow this year amid an uncertain economic outlook, in stark contrast to 2011’s 41 per cent surge, data from Ernst & Young show.

“Looking ahead, 2012 could be a slow-growth year for global technology M&A, given the return of macroeconomic volatility,” said Joe Steger, head of global technology transaction advisory services at E&Y. “Deal volume last year came close to levels seen in 2007, before the global economic slowdown, so a pause is somewhat reasonable now.”

The value of technology deals globally jumped from $119bn in 2010 to $167.7bn in 2011, as a number of big transactions, such as Google’s $12.5bn acquisition of Motorola Mobility and HP ’s $11bn purchase of the UK’s Autonomy , boosted the total. The transactions marked the first time two deals over $10bn had been agreed in the same quarter since 2000, at the height of the technology boom.

The growth in tech deals bucked the overall market trend, as the value of transactions across all sectors fell slightly last year.

“The disruptive mega-trends of social-mobile-cloud and ‘big data’ analytics have helped fuel a significant rise in global technology M&A activity since 2009,” Mr Steger said. Big data is the collection and processing of large amounts of customer information.

Many big technology companies also have large cash reserves, with E&Y calculating that the 25 largest companies in the sector had around $634bn in cash and investments at the end of the year. This has given them a lot of flexibility to do deals. The strong performance of the Nasdaq stock exchange last year has also given tech companies confidence to make purchases.

Cloud computing, smartphones and business analytics drove many of the largest deals, while social networking, security, healthcare information technology, online and mobile games and advertising technologies were all areas that saw more than 100 transactions in each sector.

Older tech companies have been eager to acquire a foothold in emerging areas. SAP, the German business software company, for example, acknowledged that it could not build its own internet-based software offering fast enough, and bought Success Factors, a company offering cloud-based human resources software, for $3.4bn.

The semiconductor sector, which is under pressure from rising production costs and uncertain customer demand, has seen some of the largest deals, including Texas Instruments’ $6.5bn acquisition of National Semiconductor, and Broadcom’s $3.7bn deal to buy NetLogic.

Mr Steger said that following the glut of deals in 2011, many companies would be focused on integration challenges over the next year, and less likely to take on other sizeable purchases. Deal volume had already been in decline in the last quarter of 2011, showing that even tech was not immune to global macroeconomic malaise.