Tech M&As Decline Sharply in First Half
Technology mergers and acquisitions have hit the skids during the first half of this year after booming in 2015, according to a merger tracking firm.
London-based Mergermarket said this week the sharp decline in technology, media and telecommunications deals reflected a "rebalancing" in these sectors after six consecutive years of steady growth. The first half of 2016 saw an estimated 1,363 deals in the three sectors worth a total of $223.1 billion. That represented a 41 percent drop in M&A value over the same period last year.
The tracking firm called the first half results "the weakest [first half] deal value and count since 2013."
Among the largest IT deals during the first half was the $4.7 billion acquisition of Greatwall Information Industry Co. (SHE:000748) by China Great Wall Computer Shenzhen Co. (000066.SZ). Indeed, many of the top deals during the first half of 2016 involved Chinese technology companies such as Chinese Internet giant Tencent Holdings Ltd. (HKG: 0700) that are flush with cash.
Among the other large technology acquisitions during the first half was security specialist Symantec Corp.'s (NASDAQ: SYMC) deal to buy Blue Coat System, an enterprise network and cloud security specialist based in Vienna, Va.
"Many technology companies are at the beginning of their innovation life cycle, and as a consequence less mature businesses are coming to market commanding smaller price tags," Mergermarket noted in a statement. First-half mergers and acquisitions targeting technology firms (1,025 deals worth $152 billion) highlighted the trend, it added, accounting for a nearly 26 percent value decrease year-on-year while the total number of tech deals declined by 147.
As Chinese tech companies continued buying during the first half, Europe accounted for most the M&A decline through June. As with other forecasts, the merger tracker noted that the uncertainty surrounding the U.K.'s planned exit from the European Union put a damper on deal activity.
"A period of political turmoil could potentially lead to a slump in activity for U.K. tech M&A, particularly within London, which has been established as a hub for [financial technology] investment," it noted.
Cloud and security solutions are seen as key drivers of technology deals, a sector in which "everything is for sale," the deal watcher said. Other drivers include mobile and "new operating systems," a likely reference to the expanding number of Linux open-source distributions.
Software giants like IBM (NYSE: IBM) and Oracle (NYSE: ORCL) are meanwhile expected to continue their buying sprees as they focus heavily on vertical acquisitions in sectors such as healthcare, analytics and utilities. Mergermarket cited Oracle's May acquisition of Opower (NYSE: OPWR), an energy analytics company and provider of cloud services to utilities in a deal worth about $532 million.
Apple (NASDAQ: AAPL), which has been repurchasing its stock, also is expected to use its substantial cash holdings to acquire tech startups or, the merger track predicted, make a splash in the market with a larger deal in the second half of 2016.
