Today we enjoyed an in-depth discussion on Trends in Technology M&A and Outlook for the Remainder of 2012 with Cyrus Lam, Managing Director of KPMG Corporate Finance LLC in New York. Cyrus not only took attendees through the current state of the M&A market, but also outlined the key drivers for technology M&A activity for the remainder of 2012. With the market flush with investable capital, he then provided some advice on how technology companies could make themselves more attractive to potential acquirers.
Cyrus characterized the technology M&A environment in Q1 2012 as disappointing. Overall deal volume was down, however deal value remained somewhat stable. Surprisingly, IPO volume rose over the last six months, with 36 private equity backed IPOs in Q1 2012 representing 35% of global IPO deals – the most since 2000.
Cyrus went on to outline five major factors impacting M&A activity for the remainder of 2012. These were:
- low cost of borrowing
- anticipated 2013 capital gains/ dividends tax increase
- China, India and Eurozone uncertainty
- oil prices and Middle East/ North Korea instability
- the US 2012 Presidential election
In particular, he suggested that the dividends tax increase will drive many US sellers to sell before 2013, with many preparing for the process now through Q2 of 2012.
Interestingly, Cyrus highlighted the growing involvement of PE firms in the acquisition of technology companies. Of the top ten technology M&A transactions in the past 12 months, 30% were made by PE firms. PE buyers are predominently focused on strategic acquisitions, driven by the opportunity to gain access to new technology and products, particularly within the communication & networking software sectors.
Industry pundits and technology executives anticipate a strong recovery for M&A activity in 2012, with cloud computing, social networking, mobile apps and big data continuing to be the top strategic priorities for key competitors.
Cyrus suggests three key areas to focus on if sellers want to appeal to large US technology buyers. In particular, sellers:
- need to enhance their profile in the US market
- enter into partnerships (where appropriate) to build compatible platforms
- engage large technology companies early and frequently in discussions.