Tech industry insiders are more optimistic regarding the pace of mergers and acquisitions (M&A), with “a slight plurality” saying that there has been more deal activity over the past six months than at any time in the past two years, according to Morrison & Foerster’s (M&F) 4Q 2013 “M+A Leaders Survey.”
Tech industry insiders expecting M&A activity to gain more momentum over the next six months outnumbered those expecting a slowdown by a 7 to 1 margin. In addition, more respondents expect an increase in the number of bidders vying for deals – “two distinct markers for more deal traction,” according to M&F’s report, which was produced in partnership with 451 Research.
Forty percent of respondents reported an increase in M&A activity over the past six months compared to 36% who said there had been less activity.
Greater optimism is evident looking ahead. The percentage of those expecting M&A activity to increase was 50%, compared to just 7% who are expecting a contraction. That’s significantly more bullish than the previous survey from April 2013, when nearly 20% of respondents anticipated a decline.
Globally, tech industry M&A is down 15% from a year ago, and more than that since the corresponding period in 2011. “The prolonged downturn may be a secular – rather than cyclical – change in the multi-billion dollar tech M&A market,” Daly writes. “More than a few buyers and advisers say they are adjusting their acquisition plans to this ‘new normal.’”
“Significant deal-making opportunities” continue to present themselves nonetheless, M&F notes, particularly for “clients pursuing large, high-profile M&A deals, such as the $21.6 billion acquisition by SoftBank of Sprint, and Sprint’s $4 billion acquisition of Clearwire.”
Looking out five years, 40% of survey respondents said they believed tech industry M&A will return to pre-recession levels. Another 31% believe there is a 50-50 chance of that occurring. M&A spending would have to roughly double to regain levels seen in 2006-2007, M&F notes.
“Valuations for the largest consolidators need to come back,” one survey participant stated, while another pointed out that “the desktop business is being disrupted by cloud, mobile and app vendors . . . if the large vendors do not acquire they will become disrupted.”
“What’s needed,” said a third, is a “continued active IPO market so the buyer universe is expanded.” Elaborating on this point, another respondent commented,“The stage is being set with a significant group of newly public companies who will be transitioning into M&A mode as they settle into being public.”
