IoT, Health Care Transactions Boost M&A Market

The M&A market in the United States is expected to maintain both its upward momentum and its attractiveness to foreign investors, according to EY.

EY and mergers

Merger and acquisition (M&A) deal-making has stabilized following record-setting levels in 2015, according to a report from Ernst & Young (EY).

The first-quarter M&A findings come amid mixed Q1 earnings results, indicating that although technology disruption and deal-making will continue, it is likely to normalize in the quarters ahead.

However, in spite of falling numbers, the quarter still ranked among the top 10 highest-value quarters, according to the report, which also noted that digital disruption continues to drive M&A in spite of global uncertainty.

Case in point: The report noted that seven of the 10 deal-driving trends were led by big data analytics—up 81 percent in year-over-year (YOY) value and 72 percent in YOY volume.

The M&A market in the United States is expected to maintain both its upward momentum and its attractiveness to foreign investors, with positive U.S. economic fundamentals and low interest rates strengthening boardroom confidence.

The report also noted the U.S. dollar’s increasing value, which has put pressure on exports and overseas earnings, should make outbound deals appealing. For U.S.-based deal-makers, the main potential downside concern is the pace of interest rate normalization.

Across the pond, the report noted the myriad challenges facing the European Union, including the upcoming U.K. referendum and the refugee crisis, are concerns for companies across all regions. These issues, while very serious, have not altered medium- to long-term capital allocation strategies, according to the report.

In addition, the volume of deal-making in the following categories also had YOY increases: Internet of things (up 22 percent), health care information technology (up 19 percent), cyber-security (up 9 percent) and advertising and marketing (up 9 percent)—categories that represent technologies disrupting non-tech industries such as manufacturing, automotive, health care and media.

"Now that market volatility appears to be easing, watch for pressure from game-changing disruptive technologies such as cyber-security, big data analytics and IoT to drive tech M&A even higher in the coming months," Jeff Liu, EY’s global technology industry leader for transaction advisory services, wrote in the report.

The report said tech vendors must continue seeking scale and end-to-end solutions. Some will continue going private to manage their transformations away from public-market scrutiny, and predicted non-tech companies increasingly would acquire tech, driving up cross-industry blur, and said all would pursue security technologies.

The number of non-tech companies buying technology companies rose 26 percent YOY to 147 deals, in contrast to the 5 percent YOY decline in the volume of corporate tech buyers, at 763 deals.