The global volume of M&A transactions in the technology sector is on the rise – from North America to Asia, M&A numbers in the tech industry are reaching heights not seen since 2001.
In both its M&A Trend Report: Q1 2014 and Global Technology, Media & Telecommunications Trend Report: H1 2014, Mergermarket reported that Global Technology, Media and Telecommunications M&A volume was up 55% in Q1 2014 compared to Q1 2013. The Q2 outstripped the Q1 results in 2014, with the value of deals tripling from Q2 2013. A significant portion of this growth is originating from North America, with 5 of the top 10 deals in H1 2014 being US-based.
M&A is a multi-faceted business strategy in the technology sector, a way to acquire talent and innovation, both valuable commodities in an industry that is always looking for the next big idea. There are likely a number of reasons for why this trend is emerging in the technology sector, but there are three key factors.
- M&A is not just a strategy limited to young and fast growing companies, but also something established technology veterans are incorporating into their business strategies. For example, Meg Whitman, CEO of Hewlett-Packard commented on HP’s turnaround plan in late 2013 and noted that “acquisitions will be part of our future…we have our eyes on a number of areas. I don’t want to do it to just buy growth, I want to do it to further the strategic position in the marketplace for HP.”
- The technology industry is also likely engaging heavily in M&A because of the significant amounts of cash these types of companies are known to carry on their balance sheets today.
- Some have described a practice known as the “acqui-hire” trend in the technology sector whereby a company will acquire a young start-up primarily with the intention of hiring its employees. The technology industry is generally start-up friendly, with low capital contribution required at the start and a variety of avenues available to obtain seed funding. What this means is that the industry sees young, gifted entrepreneurs continuously entering the market and M&A is a way to manage competition and acquire innovative, entrepreneurial talent and ideas.
As we look forward, the US market has been a significant driver of growth in global technology M&A transactions in H1 2014 but we can also expect to see significant growth out of the Asian market in the coming quarters. Chinese technology companies in particular are proving to be competitive, well capitalized and strategic in seeking global growth through acquisition. Ultimately, it appears that the global volume of technology M&A will continue to rise.
The author wishes to thank Kaitlin Shung, summer student, for her assistance in preparing this legal update.