Google, HP, Microsoft behind surge in tech M&A deals

Big deals by power players Google, Hewlett-Packard and Microsoft contributed to a 41% jump in the total value of technology mergers and acquisitions in 2011, though economic uncertainty slowed activity in the fourth quarter and could do the same in 2012, Ernst & Young says in a recently released report.

The Big Four accounting firm, in a report titled “Global Technology M&A Update: October–December 2011 and Year in Review,” says that technology M&A deals for 2011 had an aggregate value of $167.7 billion, up from $119 billion in 2010.

The number of announced transactions, including deals with and without announced values, grew 13%, to 3,006 from 2,658 in 2010.
 
But the market showed some signs of softening in the fourth quarter. While the value of announced deals grew 7% from the fourth quarter of 2010, to $32.2 billion, it was down 43% from $56.4 billion in the third quarter of 2011, which was the highest quarterly total since 2007.

The number of deals in the fourth quarter fell for the third straight quarter, to 676—down 4% year over year, 11% sequentially and 15% since peaking at 794 in the first quarter of 2011.
 
Ernst & Young asserted that steady tech M&A growth since 2009 has been driven by five tech “megatrends”: smart mobility, cloud computing, social networking, “big data” analytics, and “cross-sector and cross-industry blur.” Smart mobility refers to smartphones and other mobile devices that connect to the Internet. Cross-sector and cross-industry blur refers to technologies that are breaking down, or blurring, the economic, geographic and other boundaries that have separated economic sectors and industries.

The impact of disruptive innovations, which are reshaping not just the technology industry but other sectors as well, and the need for information security also have helped technology M&A activity to stay hot despite macroeconomic pressures that have cooled deal making in other industries. Those economic pressures, however, made their presence felt in technology M&A in the fourth quarter and are likely to slow, but not derail, deals in 2012, Ernst & Young reported.

“The disruptive megatrends of ‘social-mobile-cloud’ and ‘big data’ analytics have helped fuel a significant rise in global technology M&A activity since 2009, despite a slight pullback due to macroeconomic pressures in late 2011,” Joe Steger, leader of Global Technology Industry Transaction Advisory Services at Ernst & Young, said in a news release. “The same pressures suggest we might be in for slow growth in 2012 – but the long-term outlook for technology M&A remains strong due to ongoing disruptive technology innovation.”

The Big Trends

Among the 2011 trends in technology M&A were the following:

• Big deals: Thirty-four deals topped $1 billion in 2011, including eight in the fourth quarter. Sectors seeing the most billion-dollar activity included Internet and mobile video, cloud computing, and business intelligence and analytics.

• Semiconductor consolidation: Five of the year’s top 10 M&A deals consisted of a semiconductor company buying another semiconductor company. The combined value of those deals was approximately $21.2 billion.

• Private equity: Deals backed by private equity experienced a resurgence in 2011, with the number of PE deals rising 19%, to 317, and the total value surging 67%, to $33 billion.

The Top Five Deals of 2011

1. Google Inc. to purchase Motorola Mobility Holdings for $11.88 billion (deal still pending).

2. Hewlett-Packard Co. bought Autonomy Corp. for $10.2 billion (deal closed).

3. Microsoft Corp. purchased Skype Technologies SA for $8.55 billion (closed).

4. Texas Instruments Inc. bought National Semiconductor Corp. for $6.07 billion (closed)

5. Applied Materials Inc. acquired Varian Semiconductor Equipment Associates for $4.75 billion (closed).

Source: Ernst & Young’s “Global Technology M&A Update: October–December 2011 and Year in Review” (open in PDF format).

—Jeff Drew (jdrew@aicpa.org) is a CGMA Magazine senior editor.