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Technology M&A deals reach $27b in first quarter 2011

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Global technology mergers & acquisitions (M&A) deals grew during the first quarter of 2011 both in number of deals which was 794 and in total value of $27 billion, according to Ernst & Young (E&Y).

According to E&Y, the M&A in the quarter were driven by trends in the technological industry such as smart mobility, cloud computing, social networking, mobile communications and information security as well as internet video drive deals for growth and innovation.

“Global technology mergers & acquisitions (M&A) deals grew during the first quarter of 2011 both in the number of M&A deals — up 26% (to 794) — and in total value — up 124% (to $27 billion) when compared to the same period last year” E&Y’s global technology M&A quarterly report show.

Indeed, non-technology companies purchased 15% of the quarter’s total value in disclosed-value deals, demonstrating that information technology increasingly is blurring into other industries, says Joe Steger, Global Technology Transaction Advisory Services Leader at Ernst & Young.

According to Steger, companies continued the trend of making multiple small acquisitions and weaving them together to address strategic business initiatives of which internet companies acquire multiple social networking companies, and among software as service companies.

EY indicates that the rise of “deal-a-day” e-commerce companies was reflected in a series of consolidation transactions among small and regional competitors and by geographic expansion deals done by larger competitors.

“Overall, this pattern enables buyers to maintain their competitiveness or extend their strategies in the face of rapid technology innovation, while at the same time capitalizing on current and evolving trends. However, given the rapid pace and competitive nature of these deals, it still demands rigorous deal valuation, structuring, due diligence and integration,” Steger says.

Cloud computing including telephone and cable network, E&Y said was the main driver behind dozens of deals in the quarter, including several of the largest by dollar value.

“Telephone and cable network operators acquired services companies with large data centers to build up their ability to provide cloud services…two deals involving acquisitions of storage systems suitable for use in cloud computing data centers made the list of the quarter’s top 10 deals by dollar value.”

The top 10 deals also included three semiconductor deals that brought together makers of communications chips for mobile phone technologies (i.e., 3G and 4G/LTE chips) and chip makers that produce devices for WiFi, WiMax, Bluetooth, GPS and other wireless communications technologies, said E&Y, adding there were at least half a dozen similar deals among the quarter’s smaller transactions.

The quarter also recorded multiple deals in which mobile device manufacturers purchased content and services providers, thus pushing into traditionally non-technology industries.

The Group emphasized that these acquisitions are focused on the concept of building information “ecosystems” leveraging a single operating system around each company’s smartphones, tablets and other mobile devices.

Cross-border deals also contributed to the growth in the quarter.

E&Y said, “Following a 2010 surge in cross-border deals, 2011 first quarter maintained the post-surge level: cross-border deals accounted for 34% of all the quarter’s deals, compared with 34% for all of 2010 and 31% for 2009.”

At $11 billion, the value of the quarter’s cross-border deals accounted for 40% of the quarter’s total value, compared with 41% for all of 2010 and 25% in 2009, it indicated.

According to E&Y, technology is increasingly influencing the development of the entire global economy through new waves of innovation around smart mobility, cloud computing and social networking — all of which are evident in the increasing cross-industry blur and the increasing value of information technology as a component of all products and services.

In aggregate, the cash and investments held by the sector’s top 25 companies, which topped the half-trillion-dollar mark by the end of 2010, grew to $544 billion by the end of 2011 first quarter, an 18% year-on-year increase from $461 billion at the end of 2010 first quarter, it said.

 

By Ekow Quandzie

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