Tag: Q3

The two halves of the third quarter

Brenon Daly

Contact: Brenon Daly

It’s rare that a single quarter is divided so cleanly into two completely different – almost irreconcilable – halves. Yet that’s exactly how tech M&A played out in the just-closed third quarter. From the start of July until the middle of August, dealmaking followed the same arc of recovery that it had tracked for most of 2011. And then, seemingly overnight, the stability and confidence vanished, swept away by renewed concerns about the state of the global economy. That left M&A in the back half of the quarter looking a lot like it did in the recession years of 2008 and 2009, rather than earlier this year.

Recent quarterly deal flow

Period Deal volume Deal value
Q3 2011 934 $62bn
Q2 2011 942 $67bn
Q1 2011 914 $86bn
Q4 2010 794 $41bn
Q3 2010 791 $50bn

Source: The 451 M&A KnowledgeBase

Just to put some numbers to the split Q3, consider this: two-thirds of M&A spending came in the first six weeks of the quarter, with the final six weeks accounting for the remaining one-third. (Incidentally, that’s the direct inverse of the typical seasonal pattern for Q3, which almost invariably finishes stronger than it starts.) The number of deals in the second half of Q3 dropped more than 10%. More significantly, however, the transactions that did get done toward the end of the quarter were much more conservative than the deals inked earlier. Of the 20 largest transactions announced in the July-September period, only four came in the back half of Q3. Click here for a full report on the challenging third quarter.

Oracle steps back into M&A market

Brenon Daly

Contact: Brenon Daly

After taking the summer off from M&A, Oracle on Monday announced the acquisition of authentication management startup Passlogix. The purchase is the first one by the normally acquisitive Oracle since it announced a pair of asset pickups in late May. Sitting out the summer slowed Oracle’s pace from steady deal flow earlier this year as well as other years. The Passlogix buy is Oracle’s eighth deal in 2010.

The first seven purchases, however, came in the first five months of 2010. That was ahead of the M&A pace Oracle held from 2005-2008, when it inked an average of a deal a month in each of the years. Oracle announced just eight acquisitions in recession-wracked 2009, when overall M&A activity was muted.

As we noted in our report on Q3 M&A, Oracle was one of the highly visible companies that didn’t announce a single transaction in the July-September period. Similarly, both Microsoft and Symantec sat out the quarter, too. But their inactivity was more than made up for by fellow tech giants Hewlett-Packard and IBM. That duo went on an M&A safari in the third quarter, with an eye toward bagging big game. In the just-completed July-September period, IBM and HP combined to announce 11 deals with a total bill of more than $7.3bn.

Third-quarter M&A: Forget the headlines

Brenon Daly

Contact: Brenon Daly

To get an accurate read on M&A this summer, you have to look past the headlines. Undeniably, there were a few high-profile deals, including the sale of McAfee in the largest deal ever in the security industry, as well as a high-profile bidding war that pushed 3PAR’s valuation into the double digits. Beyond those transactions, however, deal flow in the third quarter, which wraps today, has been distinctly average. Spending is coming in at $46bn, only slightly above the average spending of $40bn in the eight quarters since the Credit Crisis erupted.

The $46bn also sits at the midway point of spending in the first two quarters of the year ($30bn in Q1 2010 and $62bn in Q2 2010). It also nearly splits the difference between the previous year’s quarter ($38bn in spending in Q3 2009) and the previous quarter this year ($62bn in spending in Q2 2010). We’ll look at why the value of deals announced in late summer dropped one-quarter from the record level in early summer in a special report tonight, but for now consider this: Of the five largest transactions so far in 2010, just one was announced in the third quarter. Again, we’ll have a full report on Q3 M&A in tonight’s Daily 451 and 451 TechDealmaker sendouts.

A bummer of a summer

Brenon Daly

Contact: Brenon Daly

Since we’re right at the midpoint of the third quarter, we thought we’d check up on recent deal flow. (For all of the pre-decimalization Wall Street traders out there, this means that 2010 is now five-eighths in the book.) When we ran the M&A numbers for Q3 so far, we found that it’s been a bummer of a summer for dealmakers: The number of transactions from July 1 to August 15 hit a six-year low.

For the six-week summer period so far this year, the number of deals totaled just 373 transactions, only a slight 3% decline from the recent low (386 deals during the same period in 2008) but a whopping 30% drop from the recent high (530 deals during the same period in 2006). Further, the scant spending in the period so far puts the full third quarter on track to hit just the low end of the range we’ve seen since the Credit Crisis erupted. And that’s coming after a post-recession M&A spending record notched in the second quarter. (See our full Q2 report.)

There are a number of reasons for the light activity. The stock market has been weak lately, with the recent slide leaving the Nasdaq underwater for the year. So far in August, the Nasdaq has registered seven down days compared to three days when it closed in positive territory. During that same period, the uncertainty in the market – as represented by the Chicago Board Options Exchange’s Volatility Index – has moved from the low-20s to the mid-20s. Risk and uncertainty tend to work against M&A, either by prolonging negotiations or killing deals altogether.

Mid-Q3 M&A totals

Period Deal volume Deal value
July 1-Aug. 15, 2010 373 $16.2bn
July 1-Aug. 15, 2009 403 $11.9bn
July 1-Aug. 15, 2008 386 $18bn
July 1-Aug. 15, 2007 427 $35.2bn
July 1-Aug. 15, 2006 530 $55.5bn
July 1-Aug. 15, 2005 383 $37.9bn
July 1-Aug. 15, 2004 244 $10bn

Source: The 451 M&A KnowledgeBase

Hardly a firecracker start to July M&A

Brenon Daly

Contact:  Brenon Daly

Just looking at the high-profile names that have been buyers so far this month, an observer could be forgiven for just assuming that we’re automatically going to top the record level of spending that we tallied for the second quarter. ADP, Facebook, EMC, IBM and Dell (among others) have all announced acquisitions in July, the first month of the third quarter. So M&A is back, right?

Maybe not. Although it’s still early (very early) in the third quarter, we don’t necessarily expect spending in the current quarter to eclipse the second-quarter level. In the April-June period, the value of transactions hit $62bn, more than 10% higher than any quarterly total we’ve seen since the Credit Crisis erupted two years ago. For the third quarter, we wouldn’t at all be surprised to see M&A spending slip back somewhere in the band of $30-50bn in quarterly deal flow that we’ve seen over the past two years.

Nearly halfway through July, we’re tracking to the lowest spending level in the past four months. In fact, July is shaping up to be 30-40% lower than the monthly totals from March to June. Granted, the start to July – with the long Independence Day weekend, not to mention the distraction of the World Cup – may not be representative for the full month. But it’s certainly an early indicator worth following. We’ll be looking at the current M&A market and what the rest of 2010 might hold for dealmakers in a special midyear webinar. Click here to register.

2010 activity, monthly

Month Deal volume Deal value
January 296 $5bn
February 278 $8.3bn
March 273 $17bn
April 252 $21.1bn
May 271 $20.3bn
June 260 $22.5bn

A ‘new normal’ for tech M&A

Brenon Daly

Contact: Brenon Daly

With the third quarter now in the books, we’re busy tallying the buying that went on over the past three months. Not that it involves all that much work, actually. In fact, for all the talk of how much better off we are now than at this time last year, you wouldn’t know it from the M&A levels in the third quarter, which wrapped yesterday.

And just to qualify, when we say ‘better off,’ in most cases we mean ‘less worse off.’ It’s true, for instance, that jobless rates aren’t rising as fast as they once were, but they are still rising. That sentiment is mirrored in statistics covering many other areas of the economy as well, although is does go against the 15% rise in the Nasdaq over the summer.

So where do these currents and crosscurrents leave us in terms of numbers of third-quarter deals and the spending on them? In the just-completed July-September period, we recorded 740 transactions with an aggregate announced value of $34bn. That lines up nearly identically with the 733 deals worth $32bn in the third quarter of 2008, which saw the beginning of the historic credit crisis. Further, the third-quarter results continue the trend of measuring tech M&A spending in the tens of billions of dollars, compared to the $100bn quarters that we saw regularly during the boom years. Our take: there’s a ‘new normal’ in tech M&A.

Recent quarterly M&A activity

Period Deal volume Deal value
Q3 2009 740 $34bn
Q2 2009 767 $48bn
Q1 2009 654 $10bn
Q4 2008 725 $40bn
Q3 2008 733 $32bn
Q2 2008 719 $173bn
Q1 2008 836 $55bn

Source: The 451 M&A KnowledgeBase

Correlated markets?

Brenon Daly

Contact: Brenon Daly

To look at the recent performance of the Nasdaq, you’d hardly know that capitalism (as we know it) almost died a year ago. The tech-heavy index was largely unchanged on Wednesday but has posted gains for three straight sessions, having added 9% so far in September. That’s part of a longer run that has seen the Nasdaq tack on 35% since the beginning of 2009 and 70% since bottoming out in early March. In fact, the index is essentially where it was a year ago, before banks started going under, the credit market froze and the US government fired up its printing presses to give us all enough money to buy our way out of the recession.

The optimism that’s been boosting the equity markets is starting to carry over to the M&A market, with several signs from big-time buyers pointing to a return to health:

  • Dell’s recent reach for Perot Systems stands as the largest tech transaction in five months.
  • Google inked its second acquisition in as many months, after being out of the market for nearly a year. (The search giant added reCAPTCHA last week after picking up On2 Technologies in early August, its first purchase of a fellow public company.)
  • Adobe and CA Inc announced their largest deals in four-and-a-half years and three-and-a-half years, respectively, in the past week.
  • Microsoft grabbed a bucketful of small companies to add technology to its ERP division, a business that has largely been shaped by a pair of billion-dollar buys earlier this decade.

Of course, we need to consider this resurgence of deal flow in the context of an overall sluggish M&A market. With a week and a half left in the third quarter, spending on deals is running at just $28bn. While that would put activity roughly on par with where it was last year, it is only half of the amount of third-quarter spending in 2007 and one-third of the total in Q3 2006. Another way to look at it: the roughly $84bn that we’ve seen so far for all of 2009 is basically what we used to see in a single quarter during the boom years.

Q3 tech M&A activity

Period Deal volume Deal value
Q3 2009 (through August 22) 672 $27bn
Q3 2008 733 $32bn
Q3 2007 825 $58bn
Q3 2006 1,029 $102bn
Q3 2005 811 $87bn

Source: The 451 M&A KnowledgeBase

Big buyers sit out Q3 uncertainty

Brenon Daly

With the third quarter in the books, we get our first glimpse of the impact that the unprecedented upheaval on Wall Street is having on tech M&A. Over the past three months, the value of tech deals dropped about one-third from year-ago levels, sinking from $58bn to $37bn.

The falloff was even more pronounced at the high end of the market: only six deals worth more than $1bn were announced during the July-September period, down from 11 deals worth more than $1bn during the same period last year and 22 deals worth more than $1bn during the third quarter of 2006. (Along those lines, IBM has acquired just one public company so far this year, down from three last year.)

There are a number of reasons for the muted deal flow, starting with the barren conditions in the credit market. That knocked the number of leveraged buyouts from 36 in the third quarter of last year to just 12 this year.

Strategic acquirers, too, faced their own difficulties in striking deals as they got clubbed on the Nasdaq. Consider Google, which saw its shares bottom out at the end of the quarter at a three-year low. So far this year, the online ad giant has inked just four deals, down from 14 during the same period last year. Or Citrix, which recently saw its shares reach their lowest level since mid-2005. The enterprise software company has scaled back its acquisitions, picking up a product line and a tiny German company so far this year, after closing five deals during the first three quarters of 2007. See full report.

Third-quarter deal flow

Period Deal volume Deal value
Q3 2005 811 $87bn
Q3 2006 1,030 $102bn
Q3 2007 822 $58bn
Q3 2008 691 $37bn

Source: The 451 M&A KnowledgeBase