Deal values fall from Q4 2009 but conditions favorable for robust M&A growth in rest of 2010

London, 5 May 2010 — Merger-and-acquisition (M&A) activity in the global technology sector continued to increase in Q1 2010 even as big-ticket technology deals paused, according to the most recent quarterly technology M&A report by Ernst & Young. The report also highlights conditions that indicate significant growth in technology M&A activity for the rest of 2010.

Global Technology M&A Update, January-March 2010, shows that deal activity continued its upward trend for the fourth consecutive quarter, with 628 announced deals compared to 553 deals in Q4 2010 — a 14% increase. However, Q1 2010 total deal value and average deal value dropped sharply compared with Q4 2009 (total value of deals with disclosed values declined by 66% to US$12.1b from US$35.4b in Q4 2009). In Q1 2010, only two deals were above US$1b, (one corporate and one private equity deal) compared to none for the same period last year (Q1 2009) and seven in the last quarter (Q4 2009).

Joe Steger, Global Technology Transaction Advisory Services Leader at Ernst & Young, says: “The continued increase in the number of deals over the last four quarters is not surprising given the speed in which certain technologies are changing, the rebound in the overall operating performance of the technology industry, increases in the NASDAQ composite index and improvements in the broader economy. The drop in value is likely due to several factors, including: a traditional seasonal dip in fourth-to-first quarter values; and certain large, acquisitive companies who announced large acquisitions in the second half of last year are taking a pause from large deals to successfully integrate recent acquisitions.”

Small strategic deals with big potential drive activity
“Although big-ticket transactions slowed down during the first quarter, the technology sector has continued to see a steady increase in deal activity — particularly small, strategic deals” says Steger.

Mobility remained the primary disruptive-technology deal driver, but the focus of mobile activity moved from infrastructure to the quest for mobile applications and content (more than 40 deals). Social networking drove nearly three dozen deals, ranging from relationship mapping to patient community websites; cloud computing (including software as a service) drove another two dozen deals; and technology-enabled solutions in health care (three dozen deals) and clean energy (two dozen deals) made an impact on the sector as companies searched for strategic buys to facilitate their visions.

Cross-border action dips
After reaching US$9.7b in Q4 2009, the value of cross-border deals dropped to US$3.2b in Q1 2010. Europe was a net seller in Q1 2010 for the third consecutive quarter, selling 78% of the cross-border value and acquiring just 20%. US companies acquired 68% of the European value sold, 22% involved deals within Europe and 8% of the cross-border value was acquired by Asia-Pacific companies. The US, Asia-Pacific and Canada were the net buyers in Q1 2010.

Prediction is for continued M&A growth
“As Q1 2010 came to a close, the signs were pointing to continued M&A growth in technology – maybe even robust growth,” Steger says. “Macroeconomic indicators continue to turn positive in most regions of the world, although more slowly in some areas, such as Europe; the technology sector continues to present new opportunities resulting from mobility and technology-enabled innovation around information. These things lead to a “smart everything” economy and the blurring and converging of technologies, industries, and work and personal life; and leading technology companies have significant cash reserves that provides the financial flexibility that readies them to do deals.”

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About the report
Global Technology M&A Update, January-March 2010 is based on Ernst & Young’s analysis of FactSet Mergerstat data for 2009 and 2010. Deal activity and valuations may fluctuate slightly based on the date that the FactSet Mergerstat database is accessed. Only disclosed value deals are used in all value analysis.