Survey results also highlight that cybersecurity issues are an increasing concern for acquirers, PE funds are poised for spending, and the IPO market is expected to pick up
SAN FRANCISCO (October 26, 2016) – Morrison & Foerster, a leading global law firm, today announced the results of its semiannual M&A Leaders Survey, which found that more than twice as many dealmakers intend to accelerate tech acquisition activity during the next six months compared to respondents who predict a slowdown. Specifically, almost half of dealmakers (47 percent) expect tech M&A activity to increase during the next six months while only 20 percent are forecasting a decrease. It’s a marked departure from the previous M&A Leaders Survey that was conducted six months ago, where 38 percent of respondents expected an increase but 33 percent predicted a decline.
The survey results come on the back of significantly accelerated tech spending this summer despite a drop in the deal volume. The aggregate value of tech, media, and telecom (TMT) deals in 2016 tops $336 billion, according to 451 Research’s M&A KnowledgeBase. In Q1 2016, there were 1,039 deals with an aggregate total of $73 billion, while Q2 saw 1,043 deals worth an aggregate $110 billion, and Q3 saw 910 deals worth an aggregate of $153 billion. In Q3, an unprecedented number of big-ticket purchases with a median value of $2.2 billion accounted for $133 billion of deals.
“An increasing number of companies have stepped up their blockbuster deal activity as 2016 has progressed. As a result, tech M&A spending is on track for the second-highest annual total since the most recent recession falling only short of the high bar that was set last year,” Robert Townsend, co-chair of Morrison & Foerster’s Global M&A Practice Group, said. “It is encouraging that so many of our survey respondents expect even greater deal activity over the next six months. However, it is also important to note that although almost half of dealmakers shared that the current M&A cycle is still only its mid-point, another 39 percent think it is close to the end of the cycle.”
Other key findings from the M&A Leaders’ Survey include:
Cybersecurity is a Growing Concern
A vast majority of dealmakers (82 percent) report that acquirers are putting increased emphasis during their due diligence processes on the cybersecurity policies and practices of target companies. The remaining 18 percent of respondents shared that they haven’t observed any change in emphasis from acquirers, which means that not a single dealmaker said they are giving it less attention.
Private Equity Firms Sitting on Cash
Private equity buyers are expected to play an increasingly significant role in the market. Nearly half of survey respondents (45 percent) forecast buyout shops will spend more in 2017 than they have in 2016, compared to just 28 percent who forecast lower spending. That bullish forecast for private equity spending comes as financial acquirers have accounted for roughly 20 percent of all tech M&A spending so far in 2016, including 20 transactions valued at more than $1 billion, according to 451 Research’s M&A KnowledgeBase.
Divestitures appear to be a popular investment for private equity firms. A majority of survey respondents (56 percent) said they expected to see more companies selling off business units in 2017 than they did in 2016.
Increased Optimism around Tech IPOs
In a marked distinction from our April 2015 survey that came after a sharp decline in U.S. equity markets, more than half of the survey respondents (54 percent) predict increased IPO activity next year, while only 20 percent expect a decrease. Last year, 43 percent of M&A leaders anticipated a decline in tech IPO activity for 2016, and just 29 percent expected an increase. Respondents are also buoyant about IPOs in the long term; 58 percent of M&A leaders see the IPO market heating up during the next five years.
ABOUT THE M&A LEADERS SURVEY
The survey – a partnership between Morrison & Foerster and tech market intelligence firm 451 Research now in its tenth edition – examines significant developments in deal terms, as well as sentiment and trends in key technology markets across the U.S. and the most active countries and regions internationally. The recent survey was conducted in October and had 150 participants, including C-suite executives (18 percent), corporate and business development executives (27 percent), investment banking and financial advisers (30 percent), general counsel and other in-house legal professionals (18 percent), and venture capital and private equity investors (3 percent), among others.