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Global Technology M&A Shows Growth for Third Consecutive Quarter

Full year deal value down a fraction, as Q409 values quadruple over Q408

Mergers and acquisitions (M&A) activity in the global technology sector grew for the third consecutive quarter in Q4 2009, bringing optimism for continued growth in 2010, according to a new report by Ernst & Young.

Global technology M&A update found that deals done in the technology sector rose by 13% to 553 in the quarter, compared with 488 in Q309. This followed consecutive rises in Q309 and Q209, after bottoming out in Q109 (at 405).

The final quarter of 2009 was also the first quarter for deal volume to top its year-earlier counterpart, increasing by 32% compared with 418 deals in Q408. However, full-year activity was down 29%, dropping to 1,886 deals in 2009 from 2,665 in 2008.

Joe Steger, Global Technology Transaction Advisory Services Leader at Ernst & Young, says: "Technology sector M&A has emerged steady and positive in 2010. Companies faced a variety of pressures in 2009 -- from managing excess capacity and expenses to drops in sales to tightened credit markets -- and they faced them with renewed emphasis on financial and operational flexibility.

"The question remains whether the slow, steady climb in transaction activity that occurred in 2009 represents the development of a new growth curve, or if the technology market is establishing a relatively lower 'new normal' level of transaction activity."

Deal values up
Total deal value quadrupled in Q409 (US$35.4 billion) compared with Q408 (US$9.2 billion), though full-year 2009 total M&A disclosed value (US$94.8 billion) is 2% lower than full-year 2008 (US$96.3 billion).

However, quarterly value totals gained momentum throughout the year with 7 of the top 10 largest deals by dollar value breaking US$1 billion both in Q309 and Q409, boding well for continued growth in 2010. Average value of deals rose 51% to US$145 million in 2009 from US$96 million in 2008.

Steger continues: "Technology corporate deal values have surged in comparison to PE values -- as leading corporate companies have used their strong cash positions to do deals at reasonable valuations. PE firms had less flexibility in 2009 due in part to the difficulty in arranging debt financing."

Technological innovation
Deal announcements in the fourth quarter included dozens of deals for mobile content, games, social networking, payments and other narrower mobile applications. Additionally, about two dozen solar or energy-related technology deals and nearly three dozen healthcare-related technology deals were announced.

"This reflects the strong demand for mobile infrastructure upgrades and underscores the rapid development of a mobile infrastructure 'ecosystem' as smartphones and other mobile devices proliferate. It is also indicative of the growing role for technology-enabled innovation in transforming other industries," says Steger.

Cross-border activity
Cross-border deals fell to 31% of corporate deals in 2009 from 35% in 2008. While the total value of cross-border deals (corporate plus PE) fell 20% in 2009 to US$24 billion. However, the average value for cross-border deals climbed 42% in 2009 from 2008.

Of corporate deals done, the US completed the most deals in Q409 (222), 81% of which were domestic deals. China completed 31 corporate deals and had the largest percentage of domestic deals (84%). Of Q409's corporate deals, India completed the highest proportion of cross-border deals at 50%.

Corporate deals done overall by China and India in 2009, however, dropped significantly compared with 2008, from 139 to 86 in China and 80 to 39 in India.

2010 outlook
"It looks like 2010 could be a good year for technology M&A, given the continuing stabilization of the global economy, technology innovations, increasing company valuations and the improved operating performance of technology companies through 2009. But companies should be prepared for continued market volatility and stay focused -- each company's strategy is different and every deal is unique. Successful companies will conduct detailed upfront analysis, comprehensive due diligence and robust integration planning before entering into any deal," Steger concluded.

More Stories By Carmen Gonzalez

Carmen Gonzalez is the co-founder, president, and CEO of SYS-CON Media, Cloud Expo, Inc. and Ulitzer, Inc.

Carmen has been in charge of SYS-CON's sales and marketing functions since 1994. Under her leadership, the company was named by Inc 500, among the fastest growing 500 privately held companies in North America three years in a row.