Q1 2012: Number of tech M&As was down, but value is up

Tech deal volume may have dropped 7% since last quarter, but 9 deals were multi-billion dollar M&As

Even as we see an overall decline in M&A deal volumes, technology companies continue to lead other sectors in U.S., according to PwC’s US technology M&A Insights report that came out today.  This report reflected that, while technology companies are pursuing larger acquisitions, the volume of these acquisitions has decreased since the last quarter of 2011.

PwC’s US technology M&A Insights is a quarterly analysis based on data for transactions with a disclosed deal value greater than $15 million.

In the Q1 of 2012, technology deal volume decreased 7% to 64 deals compared to 69 deals closed in the previous quarter. But, because of the size of the M&As seen, the cumulative transaction value of $28.9 billion remained showed a positive trend over the last quarter of 2011's value near $25 billion. A year ago, there were 76 M&As recorded with a cumulative value of $25.1 billion, demonstrating the year-over-year decline in volume throughout 2011.

PwC stated in its findings that this move toward fewer, higher value acquisitions could be traced to several big companies gearing up and maintaining growth for this busy IPO season -- such as Facebook's continued move to acquire high-value companies.

The tech sector only saw nine M&A deals for Internet-related businesses during the first quarter of 2012, down significantly from the 20 M&A deals seen during the same quarter a year prior. 

Internet M&A deals also dipped on a sequential quarterly basis, as the sector only saw 10 deals in the fourth quarter of 2011.

Tech hardware, software, semiconductor, IT services and Internet companies, saw a dip in M&A deal volume as well. Last year's first three months saw 76 M&As, while this past quarter only saw 64 tech M&As. 

While deal volume lowered, the average deal value for Q1 2012 was $452 million, up significantly from Q1 2011 $330 million average. Also worth noting are the number of $1+ billion deals seen in Q1: nine -- that is the second highest number of mega deals since 2008.

PwC also pointed out the fervor with with tech companies are entering the public market. There were 13 tech IPOs and 14 IPO registrations during the first quarter of 2012, putting this year on track to meet or exceed last year's 65 IPO tech listings. And considering 2011 had 27% more tech IPOs than in 2010, this could be a great trend to continue.

“Improving financial markets combined with the relentless pace of technology innovation continued to fuel the recent rise in IPO activity,” said Rob Fisher, PwC’s U.S. technology industry transaction services leader, in the report summery.  “With listings on the rise, more technology businesses are pursuing the dual track approach to M&A of both the IPO and sales route.  So long as frothy IPO valuations do not spill too heavily into sellers’ expectations, the technology sector is expected to see continued strength in M&A activity throughout this year."

According to PwC, the need for innovation has also spurred a number of companies to shore up their patent portfolios to protect their position, resulting in several announced transactions below the billion dollar range focused on companies with proven and patented IP.  “We expect M&A activity focused on beefing up patent portfolios to continue as businesses seek ways to protect existing technologies in an increasingly litigious environment while at the same time ensuring that they have a clear stake in the technological foundations of the future,” added Fisher.