Deals in the technology and telecoms industry have returned to pre-recession levels this year, thanks to a number of big acquisitions such as AT&T’s $39bn purchase of T-Mobile. After two years in the doldrums, the value of merger and acquisition activity in the sector is close to levels last seen in 2008.
Deal volumes reached $323.3bn in the first eight months of the year, according to Dealogic, the data provider. That is up 19 per cent from the same period last year and close to $338.8bn reached by August 2008, just before the global banking crisis put transactions on hold.
Bankers said that technology mergers were being driven by the accelerating pace of change in the industry. Two of the largest IT inventions in history, the PC and the mobile phone, are merging into the smartphone, and companies are racing to adapt, said Guido Mengelkamp, head of technology banking, Emea at Citigroup.
“Companies’s core business are under duress and they are using M&A to transform themselves,” said Kurt Simon, co-head of Technology, Media and Telecommunications at JPMorgan. “The pace of change has accelerated and that is creating bolder activity. A lot of this is being driven by changes in the mobile market, and cloud computing.”
For example, Hewlett-Packard, which last week announced a $11.7bn deal to buy Autonomy, the UK software business, is responding to falling demand for PCs with a fundamental reorganisation of its business.
“Companies are flush with cash and it is a pretty low-growth environment, so companies are using M&A as an effective tool to generate some inorganic growth,” said Mr Simon. “There is a lot of debate now about the appropriate use of excess cash in the industry.”
Big technology companies tend to sit on huge cash reserves, and are coming under more pressure from activist investors to use the cash more efficiently. Some cross-border deals have been helped by the fact that US technology companies hold huge cash reserves in Europe, which would be taxed heavily if returned to the US.
When Microsoft bought Skype, the internet telephony business, for $8.5bn in May, the deal was done using European cash that was otherwise “dead”. The acquisition made barely a dent in Microsoft’s $38.2bn cash mountain.
Bankers have been kept away from their summer holidays this year with an unusually busy August. Google’s $12bn acquisition of Motorola’s mobility unit, and HP’s Autonomy deal were both announced last week. It was the highest level of deals in any week in August since 2006, with $68.5bn worth of transactions announced globally, according to Dealogic.
Goldman Sachs leads the adviser rankings with $98.3bn worth of deals to its name, followed by JPMorgan with $94.5bn and Morgan Stanley with $92bn.
Qatalyst, the Silicon Valley boutique investment bank founded by Frank Quattrone, however, has been a key adviser in a number of the biggest deals, working for both Motorola and Autonomy.
Get alerts on Mergers & Acquisitions when a new story is published