The total value of technology mergers and acquisitions dropped 35% last year, to $114.1 billion, after two years of surging growth - from a recent low of around $94 billion in 2009 - and activity is only expected to pick up later this year.
However, Ernst & Young's latest global technology M&A update, for the 2012 year and the period between October and December, found the number of deals held steady at 2 934, two deals less than 2011.
Ernst & Young is confident deals in the technology sector will pick up once macro uncertainties subside and valuations stabilise. "However, that doesn't appear likely in the first half of 2013."
The steepest drop off in value came from big-ticket deals - worth $1 billion or more - as there were only 28 transactions in this bracket, compared with 36 such deals in 2011, worth a total of $51.8 billion.
The $57.9 billion falloff accounts for 94% of the drop in value year-on-year and was not offset by drivers currently pushing the market, which include cloud services, big data and smart mobility. The rest of the decline came from deals worth under $100 million as transactions between $100 million and $1 billion gained a percent.
Tighter focus
"As we feared, the macro-economic pressures that returned in late 2011 held down global technology M&A activity in 2012. But that pressure also helped clarify what's important," says Joe Steger, Global Technology Industry transaction advisory services leader.
Ernst & Young saw growth in the strength of "transformative megatrends" such as social-mobile-cloud, big data analytics and accelerated adaptation, while the really big-ticket deals pulled back.
"Heading into early 2013, the short-term outlook suggests a soft couple of quarters, despite the just announced privatisation of Dell, as companies continue to deal with macro-economic uncertainty and valuation gaps," says Steger.
Ernst & Young says the largest 2012 deal was valued at $5 billion, compared with $12.5 billion in 2011, and only two of the top 10 transactions last year would have made the 2011 top 10 list.
Steger adds the "long-term outlook for technology M&A remains strong, because technology and non-technology industries both have an ongoing need to adapt to disruptive technology innovation".
Irnest Kaplan, MD of Kaplan Equity Analysts, says the local M&A space is active, although it is characterised by smaller companies being bought out by larger firms.
Last year, EOH, Adapt IT, Pinnacle Technology Holdings and Datatec all announced acquisitions; although these were numerous, the value was small and, in some cases, not enough to require disclosure. Kaplan says mega deals are not currently being seen in the local environment.
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