PwC Tracks Top IT Industry Acquisition Targets for 2016/2017

PwC’s Deal Insights data for 2016 and 2017 indicates that software and IT services sectors will remain attractive targets for corporate acquisitions this year.

Last year was an impressive year for technology mergers and acquisitions, PwC data shows. The company counted 1,613 acquisitions, totaling $323.5 billion in cumulative transaction value. While the number of acquisitions was down by 16 percent compared to 2015, the total value was up 3 percent year over year, thanks to a larger number of big deals.

According to PwC, 2016 saw an “explosion of multi-billion dollar transactions.” The year saw 61 deals that exceeded $1 billion in value, including 11 that were greater than $5 billion. The number of deals worth $1 billion or more nearly doubled year over year, amounting to $261 billion.

Non-digital buyers, or those that might not have a major online technology presence, were very active last year. In the fourth quarter alone, they bought 167 technology companies. According to PwC, “non-digital buyers” are acquiring technology companies to expedite their “transition into more digital business models.” Those non-digital buyers are most likely to be retail, automotive and healthcare companies.

Software proved to be the most sought-after segment last year, with a total of 659 deals. Its deal volume totaled $88.4 billion, topping all other technology industry segments in 2016.

The IT services segment came in second place in acquisition in 2016, accounting for 512 deals on the year. However, its total deal volume was $61.9 billion, suggesting companies paid less for IT services firms compared to others in different segments.

Semiconductor companies weren’t necessarily in high demand, but when they did sell in 2017, they fetched high prices. In fact, fewer than 100 semiconductor companies were acquired last year, but their deal volume reached $78.3 billion, putting them in second place behind software for the most segment spending.

The United States is still the place to be for companies hoping to be acquired. During 2016, 1,398 of the more than 1,600 technology companies that were acquired were headquartered in the United States. Europe came in second place with 97 deals. Asia-Pacific tallied 59 deals and Africa/Middle East saw 12 acquisitions.

Multiples, or the metrics by which companies are acquired, were up in 2016. According to PwC, the Software segment’s revenue multiple led all others at 3.5x. It also was tops in earnings before interest, taxes, depreciation and amortization (EBITDA), where its multiple stands at 18.8x. Hardware companies fetch the smallest multiples with values based on revenue at 1.4x and EBITDA at 12.2x.

While PwC didn’t put an actual figure to it, the company says technology buyers will be eyeing software companies foremost in 2017. They suspect buyers will focus on software firms operating in the cloud and artificial intelligence.

Although multiples are rising and competition is already fierce for technology companies, PwC doesn’t see the acquisition trend slowing anytime soon. Quite the contrary: The consulting firm says more buyers—including private equity companies, non-digital buyers and others—will be looking for targets in the new year. But PwC doesn’t anticipate any big semiconductor acquisitions in 2017.