Positive sentiment strongest since advent of M&A Leaders Survey; valuations expected to remain high; maturing companies turning to acquisitions for growth
SAN FRANCISCO (June 6, 2014) Its been a long drought for tech-sector M&A activity, but dealmakers are finally seeing some relief.
That’s the key takeaway from the latest M&A Leaders Survey, a bi-annual report issued jointly by Morrison & Foerster, a leading international law firm with a top-tier technology, media & telecommunications practice, and technology research firm 451 Research.
In the wake of an explosive first quarter, in which tech M&A spending was triple the average recorded over the past five years, participants in the latest M&A Leaders Survey were more bullish than theyd been in the four previous surveys, dating back to 2012. Nearly three out of four respondents said they will be ratcheting up their M&A activity through the end of the year. Thats up from one in two respondents last November. Further highlighting the positive sentiment, a mere 4% say they expect deal activity to decrease.
Even more strikingly, 72% say they expect the torrid first-quarter pace to quicken, or at least to continue. That would see the surge of transactions reaching a level not seen since the pre-recession boom years of 2006-07, when the sector hit $450 billion in total value. As if to prove the point, dealmakers turned out almost $50 billion in deals in April alone.
According to Robert Townsend, co-chair of Morrison & Foersters Global M&A Practice Group, the change in sentiment is not surprising, but the speed with which it has taken hold certainly is.
Think about it: just six months ago, only 40% of industry insiders saw M&A spending reaching pre-recession levels by 2018, Townsend said. Now, nearly three quarters of our participants expect to see 2006-07 levels reached this year. Clearly, theres been a sea change in sentiment. It’s a very welcome development for the tech M&A community.”
The latest M&A Leaders Survey, conducted in mid-April, reflects input from more than 150 C-suite officers, business development executives, corporate counsel, investment bankers, venture capital and private equity investors across the technology industry.
Conducted twice annually, the survey is the only research that regularly polls tech insiders for their views on the current and future state of the deal economy.
Other key findings from the latest survey by MoFo and 451 Research include:
- a large majority expects current high valuation levels to persist or continue to climb;
- more than half of respondents believe the maturing of the tech industry will put upward pressure on the M&A market, while just 9% foresee downward pressure;
- respondents are split on the impact of the hot IPO market in the first quarter — just over half expect a low level of competition from IPOs, while just under half project a significant impact;
- more than 50% expect use of equity as M&A consideration to increase, while 10% expect a decline;
- sellers are cooler to the use of stock in deals vs. cash, dividing almost evenly between those who expect decreased demand for shares and those expecting increased demand.
Pointing to comments by survey respondents, Townsend noted that the headwinds faced by dealmakers over the past several years have many continuing to express caution about the recent run-up in acquisition spending and the sustainability of the high level of deal-flow. Nevertheless,” he said, “without question our spring survey represents a clear sign that robust deal making will continue in tech M&A.
Just five months into 2014, spending on tech, media and telecommunications M&A has nearly topped the full-year spending levels for any year since the recession ended, according to our tech M&A database. That puts aggregate deal value for 2014 on a pace to set an overall record for TMT, tracking to about a half-trillion dollars worth of deals this year, said Brenon Daly, research director for M&A at 451 Research. The record spending is being driven by vibrant activity in virtually all sectors of the market. So far this year, weve seen the largest-ever purchase of a startup, healthy mid-market deal-making and massive consolidation among the old-line telco and media giants.
ABOUT MOFO
Morrison & Foerster advised on 131 M&A transactions in 2013 with total disclosed value of more than $112 billion, including 20 deals each valued at over $1 billion. The firms noteworthy transactions in the tech/telecom sector during the past year include representing:
- Leading Japanese wireless carrier SoftBank in its $21.6 billion acquisition of Sprint and Sprints subsequent acquisition of Clearwire;
- Cybersecurity solutions firm Sourcefire, Inc. in its $2.7 billion acquisition by Cisco Systems, Inc.
- Chinas Tsinghua Unigroup Ltd. in its $1.8 billion acquisition of Shanghai-based fabless semiconductor developer Spreadtrum Communication, Inc.;
- VMware in its $1.54 billion acquisition of AirWatch;
- Intel in its $740 million investment in Cloudera;
- Global design software manufacturer Autodesk in its acquisition of Delcam, plc., a leading designer of CADCAM and industrial measurement solutions;
- Optical transport developer Aurora Networks in its acquisition by UK-based Pace PLC;
- Global technology security leader McAfee, Inc. in its acquisition of Stonesoft Corp., a publicly traded Finnish company that provides next-gen network firewall security solutions.
MoFo was awarded the 2014 Client Service Award by Chambers USA for its Corporate and M&A work for quality and range of client service. The firm was also named International M&A Deal of the Year by M&A Advisor in 2014 for its work advising SoftBank in its $21.6 billion acquisition of Sprint and Sprints subsequent acquisition of Clearwire. The firm was also named 2013 Grand Prize winner of The American Lawyers Global M&A Deal of the Year for its representation of SoftBank. MoFo was named M&A Group of the Year by Law360 and International Law Firm of the Year by M&A Advisor for the past two years. MoFo was also ranked an elite firm for Corporate and M&A by Chambers USA in 2014. The firm was named Information Technology Law Firm of the Year by U.S. News/Best Lawyers and the No. 1 Technology Law Firm for 2014 by the Vault Guide. Legal 500 ranks MoFo as the only firm in Band 1 for Technology across China, Hong Kong and the United States.
ABOUT 451 RESEARCH
451 Research is a leading global analyst and data company focused on the business of enterprise IT innovation. Clients of the company at end-user, service-provider, vendor and investor organizations rely on 451 Researchs insight through a range of syndicated research and advisory services to support both strategic and tactical decision-making for competitive advantage.