We sat down with Richard Goold, partner and head of tech law at EY Global, and discussed trends in tech mergers and acquisitions in 2016. Check out the video and read the article below, co-authored by Simon Pearson, EY UK and Ireland’s TMT corporate finance leader, to find out more.
Digital disruption drives tech M&A strength despite market uncertainty
Tech and non-tech companies being disrupted by innovative digital technologies turned to M&A in numbers that made Q3 2016 another blockbuster quarter for global technology M&A value.
With $155.5bn in disclosed value, Q3’s deal activity is now the third-highest aggregate value quarter on record. Technology deal-making is setting records because all buyers are motivated in the current environment. Incumbent tech companies seek deals to accelerate mobile- and cloud-driven transformations; non-tech companies seek strategic technologies; and private equity firms seek opportunity in hidden gems overlooked by many investors.
Digital transformation drove tech and non-tech companies alike to acquire strategic technologies and divest non-strategic assets in the third quarter. Abundant deals of both types helped propel this last quarter to blockbuster values for global technology M&A, even as volume sagged. Tighter venture capital markets and an all-but-closed IPO window also contributed, as did companies seeking global growth.
Among the many factors shaping tech M&A in 2016:
- 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 $1bn, as tech companies also pursued transformation by sharpening their core focus.
- The value of cybersecurity targets leaped in aggregate deal value; deals targeting IoT tripled, and advertising and marketing quadrupled.
- 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 deal-making targeting US companies and record-breaking overseas M&A overall.
- Artificial intelligence (AI) deals were notable as a strategic technology target of many incumbent technology companies.
Rather than allowing geopolitical uncertainty and equity market volatility to slow deal-making, 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 deal-makers – 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.