Tech M&A Market Still Revving, but Concerns on Horizon

Almost two-thirds agreed that deal structuring can reduce risk to manageable levels and that litigation concerns should be priced into any deal.

tech M&A and it management

Mergers and acquisitions dealmakers in the technology space are enjoying their most revved-up year since before the financial crisis and expect the momentum to continue into 2015, according to a joint survey conducted by Morrison & Foerster and tech market intelligence firm 451 Research.

After nearly a year of torrid transaction activity, only 16 percent of survey respondents anticipate any slowdown in the next six months, however, 43 percent of respondents predict that an increase in interest rates in 2015 would result in a slowdown in tech M&A activity.

More than 80 percent of respondents who said that the antitrust and regulatory environment has changed over the past five years believe that it is now more of a concern for M&A deal participants, and a similar percentage felt that international antitrust issues are increasingly significant in today’s tech M&A world.

The survey also indicated a few potential challenges to tech M&A in the months ahead, but not enough to seriously curtail deal volume, in the view of survey respondents.

Participants were also asked about their companies’ exposure to IP litigation and their opinions regarding its impact on M&A activity.

More than 60 percent said that they had been involved in some kind of infringement or other IP lawsuit, and more than 75 percent said that they likely would not execute a transaction if the other party was the target of significant litigation.

On the other hand, almost two-thirds of respondents agreed that deal structuring can reduce risk to manageable levels and that litigation concerns should be priced into any deal.

Regardless, the majority (82 percent) said that IP litigation requires significant additional diligence and associated cost, and a similar number recognized the need to exercise care in that diligence to avoid inadvertently waiving attorney client privilege.

According to an EY (formerly Ernst & Young) report published this month, global technology M&A value and volume reached quarterly heights not seen since the dot-com bubble.

The aggregate value of all disclosed-value deals set a new post dot-com bubble era highs of $73.7 billion, up 41 percent sequentially and 4 percent year-over-year (YOY).

At 923 deals in total, overall volume also set a record for any quarter since 2000, rising 6 percent sequentially and 31 percent YOY.

The report noted consumer Internet growth drove deals involving a range of related technologies, including online and mobile payments, social networking, gaming and e-commerce, while online and mobile video technologies, whether for games, media and entertainment, business collaboration or consumer interaction, were heavily targeted.

"On the consumer Internet front, the update report shows $14.5 billion in deals with Internet targets, including five of the 19 deals in the quarter that were valued at $1 billion or above, of the five deals with Internet targets, four are consumer-focused and the fifth is a business-to-business company that provides advertising and marketing services," Jeff Liu, global sector head of technology for EY Transaction Advisory Services, told eWEEK. "Of the top 15 deals by dollar value that target Internet companies, all but two are consumer-focused-and those two are both advertising/marketing technology platforms."

Liu noted mobile video is evolving quickly and very applicable and attractive to companies in all industries looking for efficient and effective ways to connect with their employees, customers and other stakeholders.

"Though it seems easy, to use the mobile video channel companies need access to a complex array of mobile-tuned video technologies at each layer of the technology stack, from network protocols to specialized compression algorithms--both for transmission and storage--to intuitive editing application interfaces to video content repositories, specialized search and on and on," Liu explained. "However, it is not optimal to purchase these as separate components."