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Tech M&A shot up in 2015, thanks to a slew of megadeals

$313 billion in deals announced, though less than half actually closed in 2015

Financial trends and news by Steven Loeb
February 16, 2016
Short URL: http://vator.tv/n/4357

2015 was a terrible year for the IPO market, with only 169 IPOs raising only $30 billion, a 39 percent drop in volume, and a 65 percent drop in money raised. Those numbers were the lowest since 2009. Of course, going public isn't the only way for a company to exit; they can also go the M&A route.

Last year was a mixed bag for mergers and acquisitions, as it was the most active year on record for announced deals in the US technology sector, according to a report out on Monday from PricewaterhouseCoopers.

The number increased by a whopping 82 percent over 2014, jumping from $171.6 billion to $313.1 billion.

While that seems like good news, the numbers don't look at great when it comes to deals that actually closed, though. Only 278 transactions closed last year, totaling $147.7 billion, leaving over $150 billion, or more than half, still pending. Both the number of closed deals, and their value, actually dropped from 2014, which had seen 289 deals valued at $164.8 billion. 

The reason for all that deal value still being left on the table was due to a proliferation of megadeals, or those deals that are valued at over $5 billion.

In all, there were 10 megadeals announced during 2015, including two that closed in the fourth quarter: Intel’s acquisition of Altera and NXP’s acquisition of Freescale Semiconductor, which contributed a combined $28.6 billion in deal value. The year also included the largest technology transaction in history, with Dell buying EMC for $67 billion.

In all, 30 deals in excess of a billion dollars closed last year, with 11 of them in the fourth quarter alone. There are still another 15 such deals that are still pending. 

Interestingly, the number of big deals last year was actually a smaller percentage than it had been in 2014, 11 percent compared to 12 percent. 

Despite all of those huge figures, deals that were worth less than $100 million in value actually made up nearly half, 49 percent, of deal volumes for the year. That number is higher than it has been since 2012; in 2013 it was 46 percent of deals that were small, and in 2014 it was 45 percent. 

Active sectors

While software saw the biggest number of closed deals in 2015, with 105, it did not see the largest amount in deal value. That went to the semiconductor space, which saw over $38 billion, compared to $34.8 billion for software.

IT Service also had bigger deal value, raising $35.5 billion in 67 deals. 

M&A in 2016

With over $165 million in deals still pending to close, 2016 is probably going to benefit from the spillover of megadeals from 2015. But things are still changing rapidly, and there are a few factors that PwC pointed to that could help, or hurt, M&A going forward.

One thing that could hurt are Internet companies that have spent the last few years branching out are now returning to their original missions. That could mean smaller deals, rather than the big deals that happened in 2015.

"The past two years saw a number of spin-offs as large, maturing tech companies made a clear move back to their core. With  maturing product categories and slowing market demand comes specialization. Companies who aren’t launching  products that immediately appeal to the masses will shift a portion of their longer-term R&D spending towards more immediate returns of niche acquisitions," it said in the report. 

However there are certain sectors that are going to likely drive a lot of deals, including robotics, drones, machine learning, artificial intelligence and virtual reality. 

"Coupled with advances in virtual reality and artificial intelligence, the time for companies to deliver on the cutting edge promises of this next frontier is close at hand. Much like the PC, mobile and tablet revolutions before them, expect exponential advances in all of these areas over the next several years."

(Image source: smithhenley.com)


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