Contact: Brenon Daly
Even though the overall number of tech deals is tracking to a roughly 10% decline this year compared with last year, the top end of the market is busier than ever. So far in 2016, acquirers have announced a record 90 transactions valued at more than $1bn, up from the previous record of 85 in 2015, according to 451 Research’s M&A KnowledgeBase. This year’s surge has been driven by the emergence of unconventional buyers, as well as conventional acquirers using novel strategies.
For instance, China-based buyers have announced 10 deals so far in 2016 valued at over $1bn, more than twice the average number over the previous three years. This year marks the first time China-based companies have cracked the double-digit-percentage market share for big prints.
More dramatically, private equity (PE) acquirers more than doubled the number of big-ticket tech deals they have done this year to a record 24 transactions. That means these deep-pocketed shoppers now account for one of every four ‘three-comma deals,’ according to the M&A KnowledgeBase. In one indication of how active this group has become, consider the fact that five separate buyout shops have announced more than one deal valued at $1bn+ since the start of 2016: TPG Capital, Vista Equity Partners, KKR, Apollo Global Management and Thoma Bravo.
In some ways, PE deals have become so popular that their strategic rivals have borrowed the playbook. A number of corporate divestitures – which in years past, would have likely landed in a PE portfolio before being cleaned and then sold to a strategic acquirer – went directly to corporate buyers. For instance, OpenText reached into EMC to pull out Documentum, while the services wings of both Dell and Hewlett Packard Enterprise were consolidated by IT services giants.
Corporate buyers have also been more creative recently in structuring transactions, which is something that PE firms have done more regularly. Micro Focus employed an unusual structure to assume control of HPE’s software business, which tripled the size of the British software vendor. Similarly, LogMeIn used a Reverse Morris Trust to dramatically scale up its business as it combined with Citrix’s GoTo division. Another corporate acquirer, Broadcom, went ahead with its $5.5bn purchase of Brocade Communications even though it knows it’s going to have to divest a huge chunk of that business.
Billion-dollar transactions
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Source: The 451 M&A KnowledgeBase