The total value of technology mergers and acquisitions (M&A) fell 35% in 2012 compared to 2011 on concerns of sluggish macroeconomic conditions, but cloud computing represented a bright spot, with software as a service (SaaS) companies specifically being a hot target for activity, according accounting firm Ernst & Young.
Total tech M&A deals amounted to $114 billion in calendar year 2012, compared to $175 billion in 2011. There were about the same number of deals last year compared to 2011, but they were worth less money. The average size of deals fell from $218 million in 2011 to $188 last year. The biggest bust in 2011 came from the lack of mega-deals: In 2011 there were 36 deals worth more than $1 billion; last year, there were only 28.
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"The macroeconomic pressures that returned in late 2011 held down global technology M&A activity in 2012. But, that pressure also helped clarify what's important," says Joe Steger, Ernst & Young's tech industry services leader. "We saw growth in the strength of transformative megatrends — social-mobile-cloud, big data analytics and accelerated adaptation — while the really big-ticket deals pulled back. Heading into early 2013, the short-term outlook suggests a soft couple of quarters but the long-term outlook for technology M&A remains strong, as both technology and non-technology industries have an ongoing need to adapt to disruptive technology innovation."
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The top tech M&A deals of 2012 were:
SAP AG acquired Ariba for $4.5 billion in May
CGI Group acquired Logica PLC for $2.6 billion in May
Dell bought Quest Software for $2.5 billion in July
ASML Holding announced the acquisition of Cymer for $2.5 billion in October
Ernst & Young says despite tech M&A deals falling in 2012, the cloud market remained hot, and specifically SaaS companies. "Largely on the strength of SaaS growth, the cloud/SaaS megatrend ran away from the rest of the pack of deal-driving trends in 2012, growing to more than 15% of global technology M&A deal volume," the report states. Examples of large SaaS deals include Cisco's purchase of SaaS wireless access point management company Meraki for $1.2 billion, Citrix purchasing cloud-based mobile device management company Zenprise for $355 million, and Oracle snapping up cloud-based human capital management firm Taleo ($2 billion) and marketing automation SaaS company Eloqua ($956 million).
Another trend Ernst & Young noticed was around non-tech companies buying into the technology industry, such as John Wiley & Sons, a publishing company buying online learning company Deltak for $220 million.
Some areas that fell off in activity last year were cross-border international deals, which declined for the first time in three years. The number of deals was off just 3% to 970, but the value of that activity dropped 32%.
2012 ended with mixed results in the fourth quarter, Ernst & Young says. There was a 22% growth in mid-sized deals, representing optimism that 2013 could recover, but the stock market's rally at the end of last year could dissuade some activity as valuations may be considered excessive. Overall, Ernst & Young predicts growth in 2013, but likely not until the second half of the year.
Network World staff writer Brandon Butler covers cloud computing and social collaboration. He can be reached at BButler@nww.com and found on Twitter at @BButlerNWW.