Tech Mergers Soar During Second Quarter
NEW YORK ( MainStreet) The technology sector saw a significant increase in mergers and acquisitions, recovering from multiple speed bumps earlier in the spring.
According to Ernst & Young, the value of deals disclosed during the second quarter rose 57% year-over-year to $52.4 billion, down 21% from first quarter's $66.6 billion. In terms of volume, second quarter saw 872 deals, compared to 758 during first quarter.
The increase comes on the heels of elevated interest in the financial technologies space, particularly on the consumer side, which accounted for 60 deals throughout second quarter, compared to an average of 40 each quarter last year, the report says.
Fueling the M&A boom, the economic landscape is conducive for mergers. "Macroeconomic conditions are supporting dealmaking with low interest rates, appealing lending terms and stability in equities markets," said Jeff Liu, Global Technology Industry Transaction Advisory Services Leader, EY LLP. "This confluence of factors will continue to drive record, or near-record, global technology M&A for the foreseeable future."
Plus, companies are under significant pressure from shareholders to put the cash they have to use. "Companies will either issue dividends or look for a company to buy when they have cash on the sidelines that's not being used," says John Shea, CEO of Proxy Mosaic, a shareholder advisory firm.
Shea says companies also look to acquire smaller firms as a way to gobble up the firm's talent. "Instead of pouring money into your own research & development, it's less risky to acquire a smaller firm that already has passionate talent and experience in the area you're trying to break into," Shea adds.
While the technology space is known for sky-high valuations for companies with little to no revenue streams, a company's value is highly buyer specific. When Facebook, Inc. announced its acquisition of messaging app WhatsApp for $19 billion in February, the deal raised eyebrows.
"It took Facebook four years to get to 145 million users, while WhatsApp garnered 419 million in four years, so for Facebook, this deal made sense in terms of turning some of the WhatsApp users into Facebook users ," Shea adds.
According to the report, the top five mergers in terms of value during the second quarter were:
While Shea doesn't see increased tech M&A activity as an indicator that the economy is necessarily stronger, he thinks the low cost of capital and shareholder pressure will cause more mergers and acquisitions. "The real question is will they be good deals or bad deals," he tells MainStreet.