Despite the 18% drop in the volume of mergers and acquisitions as compared to last year, one sector that has not lost a step is the technology sector. As of June this year there have been about $260 billion in tech deals announced globally, as has been shown by Dealogic data, making it clear that at least as of right now the tech sector is immune to the effects of market volatility that has other sectors approaching deals with caution. This is the highest volume that the sector has seen for the period since the tail end of the dot-com bubble in the year 2000.
The technology sector boom has been spurred by a number of record breaking deals closed in the spring. The deals have been precipitated by unprecedented reserves of cash amassed by the major global tech companies. The top five tech companies in the United States alone have over $504 billion in their reserves, with the top 50 accounting for $1.1 trillion. These major companies have begun to pursue creative and diverse expansion strategies by entering spaces which were previously foreign to them in an effort to capture evolving market share. The overall market decline has made targets that may have been outside of the price range just last year now suddenly affordable. This downward pressure on valuations has also made it difficult for companies to secure funding, giving them no choice but to turn to enter the M&A market where non-traditional buyers are waiting and are in need of the emerging technologies to enable them to remain competitive into the future.
A sub-sector that has seen particular interest involves marketing oriented operations including digital agencies, ad tech companies and analytics firms. M&As in this sub-sector has surged globally to a total volume of $6.8 billion based on 204 deals as compared to a total volume of $2.1 billion on 85 deals in the same period last year, as reported by AdvertisingAge. Of these deals 62% have involved companies with digital marketing capabilities as compared to 42% of last year. Cross-border companies and private equity funds were the main buyers responsible for this surge.
The author would like to thank Alex Kokach, articling student, for his assistance in preparing this legal update.
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