A blockbuster year for blockbuster deals

by Brenon Daly

Flush with cash and filled with confidence, tech acquirers have put up more billion-dollar deals so far this year than any other year. 451 Research’s M&A KnowledgeBase lists 100 acquisitions valued at more than $1bn already in 2018. For those who don’t have a calendar handy, the pace works out to the head-spinning rate of more than two announced transactions every week since January. Back in the recent recession, tech buyers were taking about a month to do the same number of $1bn+ deals.

The unprecedented activity at the top end of the tech M&A market is being driven by record levels of big-ticket purchases by both of the main buying groups: tech companies and buyout firms. Corporate acquirers, which account for two-thirds of the billion-dollar prints, have seen many of the market mainstays start buying again. And buying big.

For instance, IBM hadn’t paid more than a billion dollars for any company in two and a half years before announcing the $33.4bn purchase of Red Hat last month. That’s the largest-ever software acquisition. For the first half of this decade, Big Blue averaged roughly a billion-dollar deal every year. Elsewhere, German giant SAP had been missing from the list of blockbuster buyers since 2014, until it put together a $10bn double-dip this year. It paid $2.4bn for Callidus Software in January, and followed that up last week with the $8bn pickup of IPO-bound startup Qualtrics.

The recent growth in deals by strategic acquirers, however, has been outpaced by financial buyers. An ever-increasing number of private equity (PE) firms have found an ever-increasing number of ways to shop big in tech. At the start of the current decade they were averaging about a dozen billion-dollar transactions each year. This year, they are on pace to do three times that number.

Fittingly, buyout shops are using their full M&A playbook to get to a record number of $1bn+ deals. They have done large take-privates (Vista Equity-Apptio, Thoma Bravo-Imperva); they have done carve-outs (The Blackstone Group’s $17bn purchase of Thomson Reuters’ financial markets business); and, especially, they have done secondaries (Rocket Software, Eagleview Technologies and BMC Software have all traded one set of PE owners for another). Further, all of that activity comes at a time of relatively high valuations across the tech landscape for these notoriously price-sensitive buyers.

Overall, the activity at the top is important to the broader tech M&A market because the deals are the main contributor to this year’s surge in acquisition spending, which is nearing an all-time annual record. This year’s billion-dollar transactions account for all but $100bn of the total $545bn we tally for all of tech M&A so far in 2018.

But the importance of blockbuster deals goes well beyond their dollars. Big buyers inking big transactions tends to embolden other companies and their boards to pursue their own ambitious acquisitions. That’s how the number of $1bn tech deals in a single year gets pushed into the triple digits for the first time ever.

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Posted in M&A