Buoyed by cross-border mergers and acquisitions (M&A) as well as resurgence of private equity activity, the global technology M&A has increased in deal number and value, both year-on-year and sequentially in the third quarter of 2010.
This is according to the consulting firm; Ernst & Young's global technology M&A update, which says this is driven by strategic business initiatives.
Technology deals are being fuelled by strategic business initiatives such as e-commerce, cloud computing, social networking, online gaming, wireless telecommunications and mobile security, it adds.
“Trends such as the global shift to a smart economy, increasing demand for smart mobility, and the blurring of industry boundaries are expected to continue sustaining the growth trajectory for global technology M&A,” the consulting firm says.
It also says the surge in cross-border deals also continues. “After a pause in the first quarter of 2010, cross-border technology deals have significantly outpaced domestic deal growth for the past two quarters.”
This follows a strong rebound in the second quarter of 2010, cross-border deal numbers surged in the third quarter, accounting for 51% of total deal value, it adds.
Ernst & Young says the number of technology private equity deals was up 77% in the third quarter.
Surge in deals
The number of deals during this period climbed 43% compared to the same period last year and 11% over the previous quarter when macroeconomic uncertainty in the global economy likely played a role in constraining the number of deals, states the firm.
According to the firm, total deal value during the third quarter increased by 48% compared to the same period last year and 50% over the previous quarter.
The global technology transaction advisory services lead at Ernst & Young, Joe Steger, says technology dealmakers appear to have decided that their strategic M&A needs cannot wait for the global economy to strengthen.
“Growing demand for connectivity and real-time access to actionable information over mobile devices is transforming the sector and propelling the globalisation and convergence of technology platforms with other industries, spurring deal activity,” he adds.
He goes on to say technology firms are well positioned to execute transactions. “Leading technology companies have good financial flexibility, owing to significant cash balances and little leverage; however, many US technology companies have significant amounts of cash trapped offshore, which limits the amount of cash available for US acquisitions.”
The firm also points out that the trends that are driving technology M&A activity, which it pointed to in the past, are not likely to abate soon.
“The global shift to an economy based on smart - everything, mobile everything, and the blurring of traditional technology sectors will continue to present new deal opportunities for the foreseeable future,” says Steger.
“A continued downturn in global economic confidence is one thing that could dampen the short-term outlook.”
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