Big-ticket technology deals resume in Q2 2010

Small strategic deals continue while cross-border deal number nearly doubles and private equity deal values increase eightfold

NEW YORK, Aug. 5, 2010 -- Big-ticket merger-and-acquisition (M&A) deals returned to the global technology sector in the second quarter of 2010 (Q2'10), with seven transactions valued at more than US$1 billion, according to a new report by Ernst & Young. However, the report also points out that the return of macroeconomic uncertainty to the global economy in Q2'10 likely played a role in holding deal numbers flat with Q1'10 and casts a shadow of uncertainty, in the short-term, over continued M&A growth.

Global technology M&A update, April-June 2010, shows that the number of global technology M&A deals are flat in Q2'10 compared to the previous quarter, at 628 deals. This follows four consecutive quarters of accelerating growth in deal numbers from the bottom of Q1'09. However, year-over-year (YOY) deal volume is up 43%. Total announced deal value increased by 32% YOY to US$30.8 billion, which is 154% above Q1'10. The seven deals rising above US$1 billion in Q2'10 compares with only two deals above US$1 billion in Q1'10, and seven each in Q3'09 and Q4'09.

Joe Steger, Global Technology Transaction Advisory Services Leader at Ernst & Young, says that, "Even though big-ticket deals returned in the second quarter, we also saw a variety of companies, large and small, continuing to execute many small strategic transactions. The deals we noted in our report suggest that this is due to the continued rapid pace of technological change, particularly related to three industry megatrends we highlighted previously: the global shift to a "smart" economy; the increasing "mobilization" of business and personal productivity tools and applications; and the '"blurring" of sector and industry boundaries, including consolidation."

Cross-border deal number increases 92% YOY

Cross-border (CB) deal numbers rebounded strongly in Q2'10 after a weak Q1'10, increasing by 54 deals (30%) sequentially and 113 deals (92%) YOY. CB deals also turned in a strong performance in terms of average value, increasing 180% sequentially and 60% YOY, while all deals (CB and in-border) dropped 16%.

Mobility continues as growing deal driver

Mobility continues to be the primary disruptive-technology driver, directly affecting more than 50 deals. These deals vary widely, ranging from enabling technology for mobile network operators, to mobile marketing and advertising technology, to content especially video, games and smartphone applications.

Technology-enabled solutions in health care information technology (HIT) and smart grid technology each have a deal in the top 10 deals by dollar value in Q2'10.

Private equity deals increase eightfold*

Corporate and private equity (PE) deals moved in opposite directions YOY in terms of average value of deals. Average value of corporate deals fell 32% to US$128 million, while PE average values increased 715% to US$277 million. PE deals also saw a dramatic YOY rise in total value in Q2'10, to US$5 billion from US$646 million in Q2'09, for a 671% increase. Corporate total values rose 14% in the same period. Thus it seems that PE companies, which were sidelined during the worst of the recent economic downturn, are starting to become engaged once again.

Short-term outlook is uncertain for technology M&A (see data graph at: Steger says that M&A activity remains difficult to predict over the immediate near-term. "Macroeconomic headwinds have returned, and are blowing at different intensities in different regions. However, the trends that are driving technology sector M&A activity are not likely to abate soon the global shift to an economy based on "smart" everything, "mobile" everything, and the "blurring" of everything continues to present new deal opportunities."

Steger continues, "Leading technology companies are sitting on a lot of cash. The aggregate value of cash, short-term and long-term investments of the top 10 technology companies** has grown 30% year-over-year to US$258 billion. With cash reserves of this magnitude, these companies still have the financial flexibility to focus on building revenues through organic growth and M&A. They are well-positioned to execute on attractive deals when the timing is right."

*Based on a small base of 18 deals (Q2'10) and 19 deals (Q2'09)

**Top 10 companies identified are based on average ranking of market value and sales at 1 January 2010, of those that report quarterly financial information.

The top 10 technology companies*** keep getting stronger, cash-wise. The aggregate value of cash, short-term and long-term investments of the top 10 technology companies grew 30% YOY to US$258 billion at the end of Q2'10 (or an average of US$25.8 billion per company). The next 15 technology companies (rounding out the top 25) grew 8% YOY to US$192 billion in Q2'10 (an average of US$12.8 billion per company) from US$177 billion in Q2'09. Considering the top 25 companies overall, the value of their cash and investments increased by 20% YOY, to US$450 billion from US$376 billion.

***Top 10 companies are identified based on average ranking of market value and sales at 1 January 2010, of those that report quarterly financial information.

About Ernst & Young

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About the report

Global technology M&A update, April-June 2010 is based on Ernst & Young's analysis of FactSet Mergerstat data for 2009 and 2010. FactSet Mergerstat data was last accessed for this second quarter report 7 July 2010. Deal activity and valuations may fluctuate slightly based on the date that the FactSet Mergerstat database is accessed. Only disclosed value deals are used in all value analysis.

SOURCE Ernst & Young

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