Accelerated technology adaptation drives record 1Q'14 for tech M&A

- Strongest 1Q for aggregate deal value in 14 years at US$66.6b

- Deal volume is highest in six years with 758 deals

- Smart mobility megatrend dominated all other deal-driving trends in 1Q'14

- 61% of technology executives view the global economy as improving

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May 19, 2014, 10:46 ET

NEW YORK, May 19, 2014 /PRNewswire/ -- The first quarter in 2014 (1Q'14) saw record growth driving "extraordinary" M&A activity in the technology sector according to EY's Global technology M&A update: January– March 2014. The report highlights the sector's still accelerating pace of change in which multiple big-ticket deals and one megadeal reinforced long term strategic bets on the rapidly evolving future of markets and technologies.

Internet companies purchased nearly half of 1Q'14 aggregate value, especially with mobile apps continuing to make waves with social media. The aggregate value of all disclosed-value deals was the highest level in 14 years for a first quarter. Value stood at US$66.6b, up 83% year-over-year (YOY) and 41% sequentially. With 758 deals completed this quarter, volume was at its highest level in six years. Rising 6% sequentially and 15% YOY, this was the third consecutive quarterly volume increase after three consecutive declines. Private equity volume also increased for the fifth consecutive quarter with 70 deals, up 15% sequentially and 52% YOY.

Smart mobility returned to top the table for highest average deal value for all technology sectors, but indicators show smart mobility has swapped the top position with cloud/SaaS technology in each of the last five quarters. In terms of average value, every technology sector apart from computers peripherals and electronics (CPE) increased YOY. Meanwhile sector volume increased YOY in every sector except IT services.

The following key trends and deal drivers defined this quarter:

Mobile apps dominated 1Q'14, especially in value terms, and because of the significant social networking mega deal
Internet companies purchased nearly half of 1Q'14 aggregate value
Big data analytics was a mainstay in deals with marketing technology or social network targets
Cloud/SaaS, security, financial services and mobile video game technologies were targeted in dozens of 1Q'14 deals
Divestiture deals increased only slightly in volume, but a handful came with potentially transformative scope

Confidence remains high among technology executives

Coinciding with the report launch, EY has also released its biannual Technology sector Capital Confidence Barometer (CCB), which echoes these strong sentiments on the global economy, corporate earnings, credit availability and deal valuations. According to the latest CCB, confidence in the global economy remains strong with 61% of technology executives viewing it as "improving," with another 35% seeing the economy as "stable." When compared to one year ago among this group, confidence in the improving economy stood at 54% whereas only 21% believed this in October 2011.

Joe Steger, EY's Global Technology Industry Transaction Advisory Services Leader, says: "I am encouraged by the near record deal volumes in the first quarter of 2014, and that transformational big-ticket deals continued. Both are being driven by the still-increasing acceleration of change based on the five transformative technology megatrends of mobile, social, cloud, big data analytics and accelerated technology adaptation — and the new possibilities they foster, such as IoT. But EY's latest CCB shows a moderation in the outlook for the global economy, dealmaking and confidence among technology executives. Consequently, I expect technology M&A activity to remain strong in 2014, reflecting ongoing disruption from the five megatrends."

Looking ahead

The anticipation exists for global technology M&A volume and value to remain at historically high levels for the remainder of 2014, especially given the strong first quarter. There is potential for values to cool down from the level achieved in the last nine months. However the 758 deals this quarter was the highest volume in the last six years. Therefore an expectation would exist for a plateau in quarterly volume for the rest of the year either at a similar level or only modest growth.

EY's CCB supports this analysis indicating an increasing confidence in credit availability and corporate earnings growth, along with a shift toward financing deals with debt instead of cash. Finally, the impact of activist shareholders was clearly seen driving increased focus on cost reduction, share buybacks, dividends, strategic divestment and portfolio analysis.

Notes to Editors

About Global technology M&A update

The January-March 2014 issue is based on EY's analysis of The 451 Group M&A KnowledgeBase data for 2013 and 2014. Deal activity and valuations may fluctuate slightly based on the date the database is accessed. The full report is available at www.ey.com.

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