Ernst & Young: Cloud, SaaS dominating tech industry acquisitions

The overwhelming priority for mergers and acquisitions appears to be centered around cloud computing and Software-as-a-Service, based on a new report from Ernst & Young.
Written by Rachel King, Contributor

Plenty of new mergers and acquisitions in the tech industry are reported about on a daily basis, but the market has been dominated by cloud computing and Software-as-a-Service businesses, according to Ernst & Young.

The global accounting firm has just published its fourth quarter and year-end report on the state of M&A in the technology sector, highlighting that the "megatrend" in favor of cloud and SaaS companies "ran away from the rest of the pack of deal-driving trends in 2012."

Specifically, cloud and SaaS-related mergers was said to have accounted for more than 15 percent of global technology M&A deal volume in 2012. Examples of these deals include supply chain management, marketing and retail SaaS to cloud-oriented networking gear.

Analysts added that big data and analytics-related deals also saw an uptick, but it still didn't compare quite as highly.

Overall, M&A deal value still declined over the course of the year by 35 percent worldwide to $114.1 billion from $175.7 billion in 2011.

While reflecting that most companies were "hesitant to engage in large, transformative technology deals because the uncertain macroeconomic environment increased many risks," Ernst & Young researchers still said that deal volume "held steady" because they're engaging in smaller transactions motivated by these "megatrends" such as cloud and mobility.

For the outlook, Ernst & Young analysts look even less optimistic, suggesting that the technology industry could be "approaching a near-term bottom."

However, Joe Steger, a transaction advisory services leader at Ernst & Young, further explained in the report that there is still a "broad-based need" among larger technology corporations to buy up smaller companies with the expertise they need to accelerate adaptation to new trends and demands.

Other than the big privatization deal that was announced, we expect the first quarter of 2013 will be seasonally down. Overall, we expect a relatively stable volume of strategic deals in 2013 as compared with 2012, but with growth weighted more toward the second half of the year.

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