Contact: Brenon Daly
So far in 2014, the top end of the tech M&A market has been a little barren for the buyout barons. In fact, there’s been only one private equity-backed deal among the 20 largest transactions this year, according to The 451 M&A KnowledgeBase. For comparison, in 2013, three of the 10 largest acquisitions involved PE shops.
In most years, financial acquirers generally account for roughly one out of every five dollars spent on tech M&A. But this year, the buyout shops are increasingly finding themselves elbowed aside by corporate shoppers. These newly confident strategic acquirers are (for the most part) enjoying lofty valuations on Wall Street, while also rolling around in the richest treasuries they’ve ever had. (And the debt market stands ready and willing to fund bigger acquisitions, if companies want to draw on that.)
We often say that to do deals, all that’s required is currency and confidence. Both are plentiful for most corporate buyers, which is helping to put overall spending on tech, media and telecom (TMT) transactions on track for record levels. (See our full report on TMT dealmaking in Q2 and the outlook for the rest of 2014.)
The emboldened corporate acquirer is probably best exemplified by Zebra Technologies and its mid-April reach for the enterprise business being spun off of Motorola Solutions. In years past, it wouldn’t have been uncommon for a divested business like this to land in a PE portfolio for a year or two of ‘rehabilitation’ before flipping back to a strategic buyer.
Instead, Zebra – an infrequent acquirer that had never spent more than $150m on a single transaction – decided to step in and buy the business directly. (Never mind the fact that Zebra has to borrow virtually all of the $3.45bn to cover the purchase, or the possible difficulties of integrating and operating a businesses that is about 2.5x the size of Zebra’s existing business.) And how has Wall Street reacted to the uncharacteristically bold dealmaking at Zebra? Shares have tacked on about 25% in value from pre-announcement levels and currently change hands at their highest-ever level.
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