Q1 M&A: Recession hits deal-making

Contact: Brenon Daly

We’ve just finished tallying the first-quarter tech M&A numbers, and the picture is pretty bleak. In the first three months of the year, there were just 625 tech and telecom transactions, with total spending in the quarter hitting a mere $8bn. Compared to the first quarter of 2008, the number of deals dropped by about one-quarter, while spending plummeted 85%.

The main reason for the sharp decline in spending is the disappearance of big deals. In fact, for the first time in the seven years we’ve kept records on tech M&A, buyers didn’t announce a single transaction worth more than $1bn during the quarter. During 2006 and 2007, we saw an average of about 18 deals announced each quarter that were valued at more than $1bn. Even last year, when the current recession began to be felt, we still saw an average of some nine billion-dollar-plus deals each quarter. (However, on Wednesday, which is the first day of the second quarter, Fidelity National Information Services said it would acquire Metavante for almost $3bn in an all-stock deal.) The largest single transaction in the first quarter was Autonomy Corp’s $775m purchase of Interwoven.

Projecting annual totals from a single quarter is hardly an accurate way to predict deal flow, particularly in a lumpy business like M&A. (The Fidelity National-Metavante transaction underscores that.) Nonetheless, we would note that right now, 2009 is on track to post the lowest deal spending totals since the Internet bubble burst. The current low-water mark was hit in 2003, when spending totaled just $61bn. Since then, tech M&A has boomed, with spending in each of the past four years topping $300bn. But the way it looks now, 2009 is shaping up as a year when we could very well measure annual tech M&A spending in the tens of billions of dollars, rather than hundreds of billions of dollars. We’ll have a full report on first-quarter M&A on Thursday.

Quarter-by-quarter M&A totals

Period Deal volume Deal value
Q1 2009 625 $8bn
Q4 2008 721 $40.7bn
Q3 2008 733 $32.2bn
Q2 2008 716 $173.2bn
Q1 2008 835 $55.2bn

Source: The 451 M&A KnowledgeBase