Technology M&A
Abstract:
After surging by 27%, to its highest level in over a decade in 2015, tech M&A notched yet another high in 2016 at 445 closed M&A transactions on the year, up 2% year-over-year. This included a record-breaking 137 deals in Q2 2016. Looking at the PE universe in isolation, the tech sector saw more investment from PE firms in 2016 than it did at any time in history. A total of $160 billion of deal value was completed by PE firms in tech, according to Pitchbook, a leading market data vendor specializ- ing in private capital markets. Even after backing out the $60 billion Dell/EMC take-private deal that closed in September, PE invest- ment in the IT sector advanced by 10.8% year-over-year. Financial sponsors are playing an increasingly active role across M&A and late stage financings. By our count, there are over 300 tech focused PE/VC funds with over $1 trillion in capital. Meanwhile, the contrast to the IPO market could not be greater. Just 21 tech IPOs came to market in 2016, the lowest number since the Great Recession of 2009, and a tiny fraction of the go-go days in 1999 when 253 tech IPOs were done. Likewise, tech secondar- ies plummeted to an 8 year low of 55 transactions on the year. As more venture-backed companies stay private for longer, PE funds are stepping in to fill the void providing much needed liquidity for aging venture portfolio companies. Moreover, the PE model is argua- bly better suited to more mature, fast-growing companies where a longer term horizon and patient approach are more likely to achieve a lucrative exit down the road. Another growing PE trend has been the use of buy-and-build strategies. Add-ons are a way to quickly deploy capital using existing portfolio companies and achieve high target returns through acquisition synergies. Moreover, managers can utilize this strategy to seek a higher exit price as they build critical mass in a given target market and consolidate market share. Add-ons made up 64% of buyout activity in 2016, a record high, up from 61% in 2015. Despite a strong finish of 102 tech M&A deals closed in Q4 of 2016, and four straight quarters of 100 or more tech deals per quarter, many corporate acquirers and senior investment bankers expect a gradual slowing of activity in the coming year. We are off to a slow start in 2017 with only 18 deals above $20 million completed in January, well off the pace of 2016. This panel of distinguished private equity and corporate development professionals will address the landscape of the current technolo- gy M&A market and provide insight for entrepreneurs into the thought process behind evaluating an acquisition opportunity. There has been a recent surge of the “Bigs” doing mega deals (buying other big public like Yahoo/Verizon, Dell/EMC, Microsoft/ LinkedIn, Oracle/NetSuite). Oracle has been doing this for a long time and now all of the “Bigs” are jumping in. What’s driving this? Will it continue? Like we saw in the dotcom era, you now see large non-tech companies buying into tech, like Walmart purchasing Jet. Why is that and will it accelerate? We’ve seen a surge in PE backed platform companies, voracious for add-on acquisitions. Why is that, and will it continue? With a wave of mega tech acquisitions, are we depleting the competitive pool of buyers? How important is the rapid and powerful emergence of the Asian tech companies (Alibaba, Huawei, Tencent, Rakuten) to the global tech M&A market? Because of the intense pursuit of the next hot company, PE funds that were once only minority or only majority, are now doing both. Will that trend continue? Verizon has been on a tear, will that continue? How do you expect the rest of this year and next to play out in deal volume and size? How do you expect the precarious global macro-economic conditions to affect the M&A market in 2017? It hasn’t slowed it down yet. In the US, the IPO marketplace has become a big cap dominated game. Do you agree, and will that trend reverse itself? How important is the IPO as competition to the strategic buyers? Does that vary in the international markets? What tech sub markets do you predict to be most active in 2017? How and when should your portfolio companies spend time with their top strategic buyers? Once deal economics are done on a private transaction, why are these deals taking so long to get done these days? What is the next mega-deal that you think might happen? Discussion Topics: Introduce yourself, your firm, and take a minute to express your firm’s current M&A posture in this market. The “Bigs” do far more smaller acquisitions than mega deals. Around 80% of all tech M&A deals are below $100 million. Why is that, and will it continue?
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