Global tech M&A hit US$27B in Q1

The technology sector saw 794 mergers and acquisitions (M&A) during the first quarter of 2011, a 26 percent increase from last year's 628 deals, according to a new report from Ernst & Young.

The audit and advisory firm said in a Thursday statement that M&A value in Q1 totaled US$27 billion, an increase of 124 percent over the same period last year. The top deal during the quarter, by dollar value, was Western Digital's acquisition of Hitachi Global Storage Technologies.

Joe Steger, global technology transaction advisory services leader at Ernst & Young, noted that the jump in tech-related M&A was a reflection of the growing importance of IT in everyday life. "On the business side, the trends reflect that information is becoming a larger component of the value of all products and services," he said.

The fact that non-technology businesses accounted for 15 percent of the value of deals in the first three months of this year, was further proof that the lines between IT and business is increasingly blurring.

Ernst & Young reported that the growth in technology mergers and acquisitions was driven by cloud computing, software-as-a-service (SaaS), social networking, mobile communications and information security.

Cloud computing was the motivating force behind dozens of deals in the quarter with telephone and cable network operators acquiring services companies with large data centers to beef up their ability to provide cloud services, it noted. According to the report, there were two deals relating to the acquisition of storage technologies suitable for cloud data centers that made the top 10 most expensive deals in the quarter.

The mobile chip space also saw a number of marriages, with three deals between mobile chipmakers and manufacturers of wireless devices making it to the quarter's top 10 deals, including Qualcomm's purchase of Atheros. At least half a dozen deals among the quarter's smaller transactions were of a similar nature, said Ernst & Young.

In addition, there were multiple deals in which mobile device makers purchased content and service providers. These deals were focused on building information "ecosystems" that leverage one operating system around each manufacturer's devices such as smartphones and tablets.

Another reason for the market's growth is the increasing usage of Internet videos in 2010 for entertainment, business conferencing and personal video calling purposes, which have encouraged technology companies to purchase strategic video technologies, thus driving deals for growth and innovation, the study shows.

Cross-border deals continued to form a significant proportion of M&A activity, the report added. International buys between January and March accounted for 34 percent of the quarter's deals, similar to the 34 percent recorded for the whole of last year. In dollar terms, cross-border acquisitions during the quarter were valued at US$11 billion, or 40 percent of the overall deals.

More acquisitions, but smaller
On the whole, companies in Q1 continued to acquire smaller companies in the first quarter of this year, a trend initiated in 2010. "This was evident, for example, among Internet companies, which acquired multiple social networking companies, and among established software and SaaS companies, which bought multiple SaaS companies," said Steger.

Similarly, software and SaaS providers are also purchasing social networking companies to add social functions into their enterprise applications or marketing platforms.

Steger noted: "Overall, this pattern enables buyers to maintain their competitiveness or extend their strategies in the face of rapid technology innovation, while at the same time capitalizing on current and evolving trends."

Moving forward, the outlook for M&A in the technology sector worldwide looks promising--Q1 2011 was the eighth consecutive quarter without a sequential decline in the number of deals since the second quarter of 2009, Ernst & Young pointed out.

Another reason for this year's optimistic outlook is the ability of technology companies to step up their M&A spend given their strong cash flow, said Steger.

"Realistically, however, we must temper those pluses with concern over increasing divergence between buyers and sellers over valuation, geopolitical unrest, global debt issues and other unforeseeable possibilities," he cautioned.