Second-Half Surge for Tech M&A

Value of Announced Tech Deals Projected to Surpass 2017 By End of August

Spending on tech acquisitions in the first half of this year has surged — 70% higher than the same period last year. Despite facing sharp competition from non-tech acquirers and private equity buyers, enterprise (aka ‘strategic’) buyers are on pace to do more tech deals this year than any year in history. 

Shareholders should take note. Market conditions are optimal to explore a sale right now, and unlikely to get any better. Given that we haven’t seen M&A deal volume and value levels like this for 18 years, it will be some time before we see another market so favourable for sellers.

After tech M&A spending in the first half of 2018 soared to the second-highest opening for any year since the recent recession, the second half of the year is starting even slightly stronger. In the just-completed month of July, acquirers around the globe announced tech purchases valued at $49B, impacted in large degree by 10, $1B+ transactions. Last month’s spending slightly topped the monthly average of the previous six months of $44B.

Corporate acquirers once again led the robust tech M&A activity in July, continuing a recent resurgence after sitting out much of last year. The return of the big-name buyers came at the expense of rival financial acquirers, who had an uncharacteristically quiet July. Private equity (PE) spending last month slumped to its lowest level of 2018, while deal volume dropped to the second-lowest monthly total of the year.

In July, it was strategic buyers who again set the tone in the overall tech M&A market. US Corporate acquirers, who have seen their treasuries swell dramatically due to this year’s tax law changes, accounted for eight out of 10 of last month’s deals valued at more than $1B.  Noteworthy deals by some of the tech industry’s brand names in July included:

  • The largest software acquisition in history (Broadcom’s $18.9B reach for CA Technologies)
  • A significant geographic expansion for a European IT services giant (France’s Atos handing over $3.4B for US-based Syntel)
  • An uncharacteristically rich divestiture by a reeling software behemoth (PE shop EQT Partners paying $2.5B, or almost 8x trailing sales, to carve the SUSE business out of Micro Focus)

With July slightly accelerating the monthly spending average, 2018 is on pace for $540B worth of transactions for the full year. That would represent the second-highest annual total in the M&A KnowledgeBase, which goes back to 2002. Closer at hand, this year is all but certain to snap a two-year slide in M&A spending. In fact, probably before August ends, the value of announced tech deals in 2018 will eclipse the value of transactions from all of last year.

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Article Originally published by Brenon Daly, Research Vice President, 451 Research