Tech M&A Activity Slows; Executives Optimistic for 2nd Half

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Mergers & acquisitions activity in the technology
sector slowed considerably in the past two quarters,
but according to a recent survey, many technology
executives believe deals will come back with a roar in the
second half of the year.

San Francisco-based tech law firm Morrison
& Foerster and New York research house
451 Research surveyed more than 300 toplevel
tech-sector executives, including CEOS,
investment bankers and lawyers.

About 52% of those participating in the
MoFo/451 M&A Leaders Survey said they were seeing
more activity over the past six months than in
the previous year, while half as many said they saw
a decline in deal activity. About 59% of the executives
said they expected activity to increase in the
back half of the year, with 8% predicting a decline.


The technology deal market suffered a blow in
the past two quarters. Deal volume dipped to
874 transactions in fourth-quarter 2011, from 955
transactions in third-quarter 2011, and deal value
fell from $63 billion in the third quarter to $38 billion
in the fourth. In the first quarter of this year,
deal volume ticked up a bit to 889 transactions,
but the value of those deals declined to about $31
billion, according to 451 Research.

Respondents to the survey said the reasons for the
falloff were simple: Acquisitions were too expensive, and the
overall environment is too uncertain. About one in five respondents
cited steep valuations as a “very strong factor” in the M&A
slump, with 39% saying it was a “somewhat strong factor.”

And survey respondents are not holding their breath
waiting for prices to come down, at least when it comes to
private acquisitions. Fewer than 10% said they expect to
see a decline in private company valuations in 2012, while
nearly half (47%) predicted valuations would stay about
the same as last year, and more than 40% said private company
prices would actually increase. The continued availability
of the IPO market as an alternative to a sale is one
factor giving private companies additional negotiating leverage
and confidence.

Six out of 10 respondents cited global economic
concerns as a component of the deal decline.

But most respondents, who said they expected
deal activity to climb, believe so because they
intend to expand their business. Lowest on the
list of contributors to M&A increases: protecting
intellectual property, according to the survey.

That seems to contradict the man driver behind
one of the bigger tech deals announced
last year — Google’s purchase of Motorola’s
Mobility business. That acquisition, for $12.5
billion, includes Motorola’s cable set-top box
business but was made primarily for its patent
portfolio. In April Microsoft agreed to buy
925 patents from AOL Inc. for about $1 billion
and later that same month agreed to sell 650
of them to Facebook for $550 million. Neither
company would say what those patents cover.

Nearly half of respondents (47%) said patents
didn’t really figure into their rationale for acquisitions,
more than twice the level (20%) that said
patents played a role.