Tag: tech M&A

Tech M&A slumps to a start in 2011

Brenon Daly

Contact: Brenon Daly

January saw more tech deals than any single month of 2010, but M&A spending shows no sign of shaking off the slump it has been in for the past few months. The muted spending in the just-completed month marks the fifth straight month that the aggregate value for deals announced has come in only slightly above half of the monthly totals from last summer. And January is the lowest of the recent months.

We tallied some 308 deals in January, worth a total of just $11bn. That’s only slightly below the roughly $12bn monthly rate we’ve seen since last September, but it’s a far cry from the activity we recorded in the second quarter, where all Q2 months (April-June) topped $20bn in spending. (In terms of number of monthly transactions, deal volume ranged from basically 250-290 in 2010.)

In addition to the lower total value of deals, another troubling sign in January was the fact that spending was highly concentrated. The two largest transactions last month (Qualcomm’s purchase of Atheros Communications and Verizon’s acquisition of Terremark Worldwide) accounted for nearly half of all spending on deals announced in January. The 45% mark is higher than all but one of the previous four months, and notably above the 36% average for the September-December period.

Tech M&A strikes back

Contact: Jarrett Streebin

As we pointed out in a recent webinar, 2010 is shaping up to be a great year for tech M&A. With year-to-date acquisition activity already surpassing last year’s total value and number of deals, it appears as though most companies were just sitting out the storm until it was time to start buying again.

The same trend in M&A can be seen in our annual AlwaysOn study. Each year before the AlwaysOn Summit at Stanford, we do a breakdown on companies that have been selected to the AO Global 250. This year’s uptick was even more pronounced for firms selected by AlwaysOn. The median revenue multiple for AO companies was 5.2, compared with only 1.5 for tech M&A as a whole. This was based on the incredibly high volume of AO companies bought. From August 2009 to early July, there were 37 exits by AO companies, more than in any other 12-month period before. There was also the second-most total spending, with more than $5.6bn spent.

Some of the more notable exits were AdMob by Google, Greenplum by EMC and Cast Iron Systems by IBM. Google, EMC and IBM were some of the most acquisitive players this year, with each buying three AO companies. They cast their votes in the most meaningful way – by reaching for their wallets.

Tech buyers shop locally

-by Yulitza Peraza, Brenon Daly

Although the Delaware Court of Chancery was slated to rule this week on Emulex’s poison pill, the court punted on the decision. In postponing the ruling on the poison pill, which has been a key part of Emulex’s defense against the unwanted advances of Broadcom, the judge indicated that the two sides may well be able to work out a deal over the next week. Broadcom, which took its bid public on April 21, recently extended the deadline of its tender offer until July 14. The extension came as Broadcom also raised its bid to $11 per share for Emulex, up from $9.25. That added about $150m to the price of Emulex, which is currently valued at some $912m. As we noted earlier, Broadcom’s initial offer essentially valued Emulex where it was trading last October.

Unsolicited offers for tech companies, while increasing, are still relatively rare. However, in one regard, Broadcom’s bid for Emulex is rather typical. Scouring our data, we noticed a significant trend among California tech vendors: they tend to shop locally. That’s certainly true for these two southern California firms, which are only about 10 miles from one another. In the last seven years, about half of total tech M&A spending by California-based buyers went toward acquiring other Golden State tech companies. We would add that the ‘shop local’ trend isn’t limited to California, which stands as the most-developed tech region in the world. It’s also true on the other side of the country, where tech vendors based on the East Coast have spent more on acquiring neighboring tech firms than they have on companies from anywhere else.

There are a number of reasons for this trend, both formal and informal. For starters, the two sides are more likely to have a number of connections, sharing financial backers or board members, for instance. Additionally, executives at the companies may belong to the same local tech organizations or business groups. (Or, more informally, they may frequent the same restaurants or belong to the same clubs.) In some ways, our finding flies in the face of the oft-repeated notion that the world is flat, with business flowing around the globe without regard to borders or geography. That may well be true in some aspects. But when it comes to M&A, business is still largely done locally.

Geographic tech M&A, 2002-2009

Acquirer state/region Target Number of deals Percentage of total deals Total value Percentage of total value
California All 2,389 100% $247bn 100%
California California 879 37% $126bn 51%
East Coast All 2,391 100% $282bn 100%
East Coast East Coast 758 32% $83bn 30%