Winter wonderland for tech M&A?

With large-cap transactions accelerating, expectations for Q4 dealflow is on the rise.

Total North American M&A deal value was down 33% in Q3, compared with the same quarter last year, but the general consensus is that Q4 will be better.

Recent big deals in August, usually a slow month for M&A, include Walt Disney’s $3.9bn buy of Marvel Entertainment and Baker Hughes’ $5.5bn deal for Delaware’s BJ Services. The momentum looks set to continue as Xerox plans its $7.4bn takeover of ACS, and Dell readies its $3.8bn acquisition of Perot Systems.

The hope is that dealflow will snowball and trickle down to the smaller VC-backed deals. Since mid 2008, most armchair analysts have expected a recovery for VC dealflow in late 09 to mid-2010, and the big deals in late Q3 could be a harbinger of good things to come.

Another sign of a return to normalcy is the slowing of the Great American Firesale. During the first three quarters of 2008, there were 526 inbound deals into the US, a total value of just over $200bn. This year inbound deals have more than halved: 258 deals with a value of $82.5bn. Large cap foreign investments of over $1 billion have fallen off from 28 in 2008 to eight this year.

Another positive sign lies hidden in the investment banking numbers. Despite the carnage on Wallstreet last year, the landscape hasn't shifted that much. In the aftermath of the crisis, bulge brackets like Morgan Stanley saw their standing in the M&A deal tables weaken, and many expected the big boys to collapse altogether, leaving boutiques to grab a larger share of the skrinking dealflow. The bulge brackets bounced back, though, and regained their dominance, even in the mid market.

(source: mergermarket)

With startup valuations coming down to earth (Twitter aside), many VC funds looking to unload their assets, and large-cap acquisitions jump-starting the private equity dealflow, the next quarter could be primed for a flurry of startup M&A.