Tech Execs Confident Current M&A Surge Will Continue

Technology executives have 26 percent more deals in their pipelines now than in April 2014, and pricing is seen as conducive to deal making.

M&A and EY

In the wake of record-setting first quarter mergers and acquisitions (M&A) activity, technology executives expressed confidence that global digital transformation will continue to drive M&A in the sector through 2015, according to a report from EY, formerly known as Ernst & Young.

The global survey of more than 1,600 executives indicated tech executives are confident in their expectations for the global economy, corporate earnings, credit availability and technology M&A.

In addition to this overall confidence, several indicators specific to deal- making plans, pipelines and pricing point to a continuation of the current wave of technology M&A through 2015.

For example, the percentage of technology executives expecting to pursue acquisitions has more than doubled, 58 percent, over the past year.

In addition, technology executives have 26 percent more deals in their pipelines now than in April 2014, and pricing is seen as conducive to deal making.

The report found 93 percent see current valuation gaps between buyers and sellers as small to somewhat higher; 76 percent expect valuation gaps to remain stable for the next 12 months, and 81 percent expect asset pricing to remain stable for that period.

More than three quarters (78 percent) of those doing deals are planning acquisitions that would shift the scope of their business, a trend that has translated into deals that have blurred the boundaries between tech and other industries as companies pursue a wide variety of disruptive innovations.

"The shift we’re seeing in technology M&A is toward rapid growth of non-tech company buyers," Jeff Liu, global technology industry leader for transaction advisory services at EY, told eWEEK. "Driving this surge in deal making is the ongoing global business impact of disruptive technologies and digital innovation, with many recent deals targeting cloud, big data analytics, health care IT, mobile payments, the IoT and cyber-security."

The value acquired by non-tech buyers increased more than 500 percent year over year to $19.2 billion in 1Q15, from $3.2 billion in 1Q14. The value acquired by tech company buyers actually fell 1 percent on the same basis.

Liu said this shift makes sense in the context of the digital transformations that are sweeping through the global economy, as more and more companies are waking up every day and realizing there is a key technology at their core.

"The Internet of Things trend helps illuminate why this blurring will continue to grow," he explained. "IoT drives the integration of digital sensors, processing, connectivity and security into virtually every industry’s products. That means over time, non-tech companies will find tech a bigger and bigger part of the value they deliver."

Executives are increasingly optimistic about the global economy, with much broader consistency across geographies than in 2014, according to the survey.