Category: investment banking

A record year for tech M&A, and so much more

Brenon Daly

Contact: Brenon Daly

Sure, the number of deals and spending on them in 2015 blew away anything we’ve seen since we were surfing the Web on Netscape browsers, but there was a whole lot more going on inside last year’s activity. 451 Research subscribers can get our full report on what happened last year and what’s likely to play out this year. Looking inside the record deal flow we recorded in 451 Research’s M&A KnowledgeBase, for instance, we saw a number of highlights from 2015:

  • Acquirers have never announced more tech, media and telecom (TMT) transactions valued in the billions of dollars than they did in 2015, including two of the three largest pure tech transactions in history.
  • Last year saw an unexpectedly large number of tech giants either sit out the record M&A activity altogether (Symantec, the former JDS Uniphase) or significantly dial back their acquisition programs (SAP, Oracle, Yahoo, Intuit).
  • The value of divestitures by US-listed tech companies hit a new record, coming in at twice the average annual amount over the past half-decade.
  • Private equity firms announced the most acquisitions ever for the industry, more than doubling the number of deals they did during the recent recession.
  • Even as interest rates ticked higher, buyout shops paid unprecedentedly rich multiples at the top end of the market in their purchases.
  • Despite the record number of startups valued at $1bn or more, just one VC-backed company recorded a 10-digit exit in 2015, down from an average of four exits each year over the previous three years.

Our report not only highlights these trends, but also maps them to the views from the main participants in the tech M&A community to give a sense of what will shape acquisitions in the coming year. See the full report.

Valuations of significant* tech transactions

Year Enterprise value-to-sales ratio
2015 3.6x
2014 4.4x
2013 3.3x
2012 2.9x
2011 3.2x
2010 3.4x
2009 2.6x
2008 2.4x
2007 3.8x

Source: The 451 M&A KnowledgeBase *Average multiple in 50 largest acquisitions, by equity value, in each year.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA

Even after record year, tech bankers say pipeline isn’t a problem for 2016

Brenon Daly

Contact: Brenon Daly

After working through a year that saw tech M&A spending soar to its highest level in a decade and a half, tech investment bankers say their pipelines are still relatively full for 2016. More than seven out of 10 respondents (72%) indicated that the total value of as-yet unclosed transactions is higher now than it was this time last year, according to the annual 451 Research Tech Banking Outlook Survey. This year’s bullish forecast is five times higher than the 14% that said their pipelines are drier than they were a year ago.

Although bankers’ assessment of their pipeline for this year ticked a bit lower from our previous survey, it is still the third-strongest response we’ve tallied since the recent recession. It is even more noteworthy when we consider that half of the bankers (51%) said in a separate question that we are at or near the end of the current M&A cycle. That was 10 times higher than the 5% who said the cycle is either just beginning or close to the beginning.

On the more important question about valuations (as opposed to activity), bankers are unprecedentedly bearish for this year. Nearly two-thirds of respondents to our survey (64%) indicated that they see deal pricing coming down in 2016, compared with just 14% that anticipate valuations ticking higher. That’s almost a direct reversal of typical valuation outlook over the past half-decade given by M&A advisers.

451 Research subscribers can click here to view the rest of the results of our annual survey of senior tech investment bankers and their forecast on how busy they expect to be – including buyouts and IPOs – and what tech sectors will see the most activity in 2016.

Change in dollar value of tech mandates

Year Increase Stay the same Decrease
December 2015 for 2016 72% 14% 14%
December 2014 for 2015 77% 17% 6%
December 2013 for 2014 65% 19% 16%
December 2012 for 2013 58% 21% 21%
December 2011 for 2012 67% 21% 12%
December 2010 for 2011 83% 10% 7%
December 2009 for 2010 68% 12% 20%
December 2008 for 2009 26% 22% 52%

Source: 451 Research Tech Banking Outlook Survey

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

Tech’s corporate acquirers pull back on M&A plans

Brenon Daly

Contact: Brenon Daly

After a record run for tech M&A spending in 2015, an unprecedented number of the main buyers in the market expect to cut back on their shopping in the coming year, according to our annual survey of corporate development executives. Respondents gave their most bearish forecast for acquisition plans in the nine years of the 451 Research Tech Corporate Development Outlook Survey. Fewer than one-third (31%) of respondents said their firms would be increasing activity in the coming year, a full 20 percentage points lower than the average level over the previous eight surveys.

For the first time in survey history, virtually the same number of corporate development executives forecast that their firms would be scaling back their M&A programs (28%) as said they would be increasing acquisition activity (31%) in the coming year. In previous surveys, the percentage of respondents projecting an increase has vastly outweighed those anticipating a decrease, ranging from roughly two to 10 times as many as respondents.

If the bearish sentiment does come through in the activity, 2016 would snap three consecutive years of higher M&A spending, culminating in a record of nearly $600bn worth of announced tech, media and telecom (TMT) acquisitions in 2015, according to 451 Research’s M&A KnowledgeBase.

451 Research subscribers can see our full report on the outlook from corporate development executives regarding M&A valuations, private equity activity and just how many – or rather, how few – startups will go public in 2016.

Projected change in M&A activity

Year Increase Stay the same Decrease
December 2015 for 2016 31% 41% 28%
December 2014 for 2015 58% 36% 6%
December 2013 for 2014 45% 42% 13%
December 2012 for 2013 38% 42% 20%
December 2011 for 2012 56% 30% 14%
December 2010 for 2011 52% 41% 7%
December 2009 for 2010 68% 27% 5%
December 2008 for 2009 44% 33% 23%

Source: 451 Research Tech Corporate Development Outlook Survey

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

A remarkable record for tech M&A

Brenon Daly

Contact: Brenon Daly

Both the number of tech, media and telecom (TMT) transactions and the spending attached to them in 2015 soared to their highest level in a decade and a half, as an unprecedented wave of consolidation reshaped the tech landscape more dramatically than any single year since the Internet bubble burst in 2000. Two of the three largest TMT deals since then printed in 2015, helping to push the total value of last year’s acquisitions to nearly $600bn, according to 451 Research’s M&A KnowledgeBase. That smashed the previous record tech M&A spending level by more than 40% and only slightly trailed the value of all TMT transactions in the preceding two years combined.

Overall, we tallied a record 83 individual deals in 2015 with an equity value greater than $1bn in the KnowledgeBase. Many of those big-ticket acquisitions saw buyers – flush with cash but starved for growth – snap up rivals, such as Dell’s $63.1bn reach for EMC (the IT industry’s largest-ever transaction) and Avago’s $37bn pickup of Broadcom (the semiconductor industry’s largest-ever deal). Other notable pairings in 2015 came in markets such as Internet access (Charter Communications-Time Warner Cable), storage (Western Digital-SanDisk), telecom infrastructure (Nokia-Alcatel-Lucent), online gaming (Activision Blizzard-King Digital Entertainment), Internet travel (Expedia-HomeAway) and elsewhere.

It wasn’t just big acquisitions that printed in 2015. Last year also saw a record number of transactions, topping 4,300 for the first time in the history of tech M&A. (The level is about 20% higher than the average annual deal volume over the previous half-decade.) One notable example of the busy buyers last year was Microsoft. The tech giant, which is in the process of reinventing itself for the cloud era, announced 20 purchases in 2015, more than twice the number it had averaged per year recently. Similarly, IBM tripled the number of deals in 2015 from 2014, announcing 15 acquisitions last year.

Global tech M&A

Year Deal volume Deal value
2015 4,304 $594bn
2014 3,951 $387bn
2013 3,295 $246bn
2012 3,651 $185bn
2011 3,797 $233bn
2010 3,293 $190bn
2009 3,030 $143bn
2008 3,098 $326bn
2007 3,654 $420bn
2006 4,036 $418bn

Source: 451 Research’s M&A KnowledgeBase

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

One company’s trash is another company’s treasure

Brenon Daly

Contact: Brenon Daly

Corporate divestitures aren’t necessarily the castoffs they used to be. Increasingly, divisions that have outlived their usefulness inside large companies are getting shipped directly to other companies, bypassing the once-obligatory stop in a private equity (PE) portfolio. This trend of ‘strategic to strategic’ divestitures has been driven by dramatic changes in tech companies and their strategies – on both sides of the transactions.

On the ‘supply’ side, there have never been more divestitures by listed US tech companies than in 2015, according to 451 Research’s M&A KnowledgeBase. (See our full report on this year’s record level of activity.) Some tech companies – particularly those of a certain age – have sold off assets as part of a larger corporate reorganization. (For instance, Hewlett-Packard, which cleaved itself into two $50bn-revenue businesses in November, has shed five divisions this year – as many divestitures as it had done, collectively, over the previous half-decade, according to the KnowledgeBase.) In some cases, the push to divest has been sharpened by the ever-increasing agitation by activist hedge funds.

Meanwhile, on the ‘demand’ side, the fact that companies are dealing directly with other vendors on divestitures isn’t all that surprising when we consider how frequently they have been negotiating with each other on outright sales. (Consolidation, which corporate development executives told us in a survey last December would be the second-most-popular type of deal in 2015, is roughly akin to a scaled-out version of a divestiture.) Consolidation has reached an unprecedented level this year, with huge chunks of the IT landscape coming together.

Put that together, and publicly traded tech companies are increasingly finding themselves sitting across the negotiating table from other publicly traded companies. Carbonite, j2, CACI International, Raytheon, Trend Micro, Amdocs, Tangoe and others have all picked up businesses from fellow publicly traded companies in recent months, according to the KnowledgeBase.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

November: a middling month for M&A

Brenon Daly

Contact: Brenon Daly

Although the number of tech deals in November dropped to the second-lowest monthly total so far in 2015, the aggregate value of last month’s transactions landed smack in the middle of announced M&A spending levels this year. The $39.3bn worth of spending on tech, media and telecom (TMT) acquisitions in the just-finished month is the median monthly amount for 2015, with five months coming above that amount and five below. Meanwhile, the number of prints in November came in at just 317, about 12% lower than the average rate in the previous 10 months, according to 451 Research’s M&A KnowledgeBase.

By definition, the lower-than-average M&A volume but straight-down-the-middle spending level means last month saw a fair number of big prints. Indeed, the KnowledgeBase tallied 10 transactions with an equity value of at least $1bn announced in November. (That brought the year-to-date total for billion-dollar-plus deals to 74.) However, not one of last month’s acquisitions topped $6bn. For context, in the previous 10 months, we had seen 14 transactions worth at least $6bn.

Looking within deal flow at the top end of the tech M&A market, we can see that much of it came from old-line consolidation. Five of the six largest acquisitions featured buyers reaching for targets that operate in the same market. For instance, videogame maker Activision Blizzard announced plans to pay $5.9bn for fellow videogame maker King Digital Entertainment, while the ever-maturing semiconductor industry saw a pair of 10-digit deals last month.

November’s solid spending level pushed this year’s post-Internet bubble record for M&A spending even higher. With still a month to go, the 2015 total for global TMT M&A spending has already topped $560bn, according to the KnowledgeBase. That works out to $140bn higher than the previous full-year record in 2007. Viewed another way, this year’s level has already added on a full quarter’s worth of spending from the previous record level.

Monthly M&A activity, 2015

Month Deal volume Deal value
November 317 $39bn
October 384 $113bn
September 378 $33bn
August 333 $27bn
July 435 $23bn
June 380 $35bn
May 311 $123bn
April 369 $47bn
March 340 $61bn
February 339 $49bn
January 358 $11bn

Source: 451 Research’s M&A KnowledgeBase

For tech giants, it’s ‘buy bye’ as divestitures hit record

Brenon Daly

by Brenon Daly

Tech giants are having garage sales like never before. What were once viewed as ‘strategic’ businesses at Symantec, Nokia, Intel and others have been placed out on the curb for sale at a record pace in 2015. So far this year, according to 451 Research’s M&A KnowledgeBase, tech companies that trade on US exchanges have already divested $59bn worth of assets. That’s the highest-ever amount for divestitures, and twice the average full-year total over the past decade.

The divestitures are the latest indication of the seismic changes currently sweeping the IT landscape. In some cases, the moves have simply unwound earlier acquisitions that never generated the level of returns the buyer had hoped. Accordingly, buyers-turned-sellers in those situations almost invariably take a bath on the deal, like Nokia selling its mapping business in August for $2.7bn after shelling out $8.1bn for Navteq eight years earlier.

Those ‘coming and going’ divestitures are a fairly standard part of any corporate portfolio review, taking place in virtually every economic cycle. What has elevated divestiture activity in 2015 to record levels is the unprecedented corporate overhauls of many tech giants. That has put more parts in play. For instance, eBay dumped two sideline divisions when it sold PayPal last summer.

Even more dramatically, Hewlett-Packard, which cleaved itself into two $50bn-revenue companies a few weeks ago, has punted five businesses this year – as many divestitures as it had done, collectively, over the previous half-decade, according to the KnowledgeBase. Its latest move to unload TippingPoint sparked additional rumors that HP might look to shed another piece of its security portfolio, ArcSight. That business has been relatively dormant within HP since the mid-2010 acquisition, despite the steady growth in the security information and event management market.

Looking ahead, the divestiture pipeline appears even fuller for 2016. A number of vendors have already indicated that they are looking to sell off businesses, including Citrix, Intuit and Teradata. In addition to the disclosed plans, there’s speculation that Intel could unwind its McAfee unit. (Last summer, Intel ended its experiment with API management, discarding Mashery after owning it for about two years.) And then there’s a long list of assets that Dell might look to divest to help cut the cost of the tech industry’s largest deal, provided it does indeed close. We could certainly envision several ‘pearls’ in EMC’s ‘string of pearls’ being on the auction block, including RSA and Documentum. If they do sell, both the content management and security businesses would be billion-dollar divestitures.

Divestitures by US-listed tech companies

Year Deal volume Deal value
YTD 2015 141 $59bn
2014 151 $43bn
2013 172 $30bn
2012 190 $23bn
2011 123 $19bn
2010 148 $21bn
2009 214 $26bn
2008 136 $23bn
2007 138 $14bn
2006 137 $51bn
2005 144 $18bn

Source: 451 Research’s M&A KnowledgeBase

InfoSec startups wonder: why bother with Wall Street?

Brenon Daly

Contact: Brenon Daly

Why bother with Wall Street? An increasing number of tech startups – particularly those in the red-hot information security market – are saying ‘thanks, but no thanks’ to going public, and instead raising IPO-like rounds from private investors. So rather than an IPO for security startups being an ‘initial public offering,’ it stands for ‘inflated private offering.’

This trend toward big checks reached new heights this week with a $250m round raised by Tenable Network Security from Insight Venture Partners and Accel Partners. Yes, that’s right: a quarter-billion dollars in a single investment, with no SEC headaches, no public financial disclosure and very few stops on an abbreviated roadshow. If that kind of relatively hassle-free money is sloshing around the security landscape, why wouldn’t a company divert some of it to its own treasury?

And to be clear, that kind of money is available in infosec. So far this year, at least eight security startups have announced single rounds of funding that in years past would have only been available from Wall Street. In addition to this week’s whopper from Tenable, we also saw Illumio raise $100m in April, Zscaler raise $100m in early August, CloudFlare raise $110m in late September, Tanium raise $120m in early September, CrowdStrike raise $100m in mid-July and Okta and Netskope both raise $75m in early September.

Against this flurry of private-market fundings, we’ve seen just one infosec provider go public on US exchanges in 2015. In many ways, Rapid7’s decision to go ahead with its $100m IPO in June is almost endearingly recherché. But the out-of-step decision to go public also comes at a financial cost to Rapid7. Because of an inversion in conventional financing, the liquidity of Rapid7 shares and the transparency actually get discounted when compared with private-market fundings. Rapid7 isn’t even a unicorn, unlike the majority of still-private infosec startups that raised as much – if not more – than it did.

Classical economic theory holds that an imbalance such as this tends to correct over time. (The only open question is when, not if.) However, assuming we do return to a time when Wall Street is the primary – if not exclusive – source for, say, fundings of $100m or more, simply working through the existing backlog of infosec companies that have already done these big-money rounds in the private market could take several years. And, as we have seen in other markets that are temporarily distorted because of an overabundance of capital, working through that can be a painful process.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

Webinar: What’s ahead for tech IPOs, M&A and all those unicorns?

Brenon Daly

Contact: Brenon Daly

After a record run for tech M&A, where do dealmakers see the market heading in the near term? Are they going to stay busy or catch their breath? And what do they expect to have to pay for startups in the transactions they make? What about the IPO market? And what’s going to happen to the ever-growing herd of unicorns over the next year?

For answers, join 451 Research and Morrison & Foerster on Thursday, November 12 at 10:00am PST for a webinar covering all of these topics and more. (Click here to register for the one-hour webinar.) We’ll be drawing on the findings from the latest M&A Leaders’ Survey from 451 Research and Morrison & Forester as well as highlighting trends in current market activity that have pushed spending on tech M&A to its highest level in 15 years. Already in 2015, buyers have shelled out more than a half-trillion dollars for deals they’ve announced. So the question remains: Where do we go from here?

Register now for a look at what’s behind the recent record and whether that will continue in 2016.

Unicorn outlook

Survey: the already weak tech IPO market looks even weaker in 2016

Brenon Daly

Contact: Brenon Daly

Despite 2015 being one of the weakest markets for tech IPOs in recent years, respondents to the M&A Leaders’ Survey from 451 Research and Morrison & Foerster don’t expect a rebound in 2016. (See our full report on the survey.) In fact, more than four out of 10 (43%) forecast a further slowdown in public offerings next year, compared with three out of ten (29%) expecting a pickup in IPO activity. That’s a direct reversal of the already weak sentiment from the previous survey just last April.

By our count, only a half dozen enterprise tech companies have come to market on US exchanges so far this year. More alarmingly, the companies that have made it public in 2015 have continued to get roughed up on Wall Street. Half of this year’s debutants (Box, Apigee and Xactly) are currently trading below the valuations that venture investors put on them. (Similarly, Good Technology abandoned its yearlong effort to go public and instead took a relatively low-multiple sale in September that valued it at less than private-market investors had in previous funding rounds.)

With the IPO market likely to be an unwelcoming place in 2016, a dispiritingly painful reception could be waiting for those late-stage companies aiming to raise capital once again in the private market rather than on Wall Street, according to our survey respondents. A staggering seven out of 10 anticipate that the valuations of late-stage funding will decline next year, compared with just 5% who project up-rounds. Another way to view the incredibly bearish forecast from our survey respondents is that for every one person from the tech M&A community who expects the privately held high-fliers to continuing soaring to higher valuations, 14 respondents predict gravity to set in.

See our full report on the survey results, which includes the outlook for IPOs as well as a near-term forecast for M&A activity and valuations.

IPO market outlook

Survey date Forecast increase Stay the same Forecast decline
October 2015 29% 28% 43%
April 2015 41% 32% 27%

Source: M&A Leaders’ Survey from 451 Research / Morrison & Foerster