Survey results indicate a change in the deal cycle, with respondents also sharing their perspective on private company valuations and tech IPOs
SAN FRANCISCO (May 10, 2016) – Morrison & Foerster, a leading global law firm, today announced the results of its semiannual M&A Leaders Survey. According to the findings, more dealmakers still expect M&A activity to increase during the next six months (38 percent) than those who forecast a decrease (33 percent). However, the result is a significant departure from the bullish survey findings from a year ago when 61 percent of respondents predicted growth in dealmaking, and only nine percent expected a decline.
The survey results come on the back of the aggregate value of tech, media, and telecom (TMT) deals in 2015 topping $600 billion, reflecting the highest level of spending since 2000 and more than 80 separate tech transactions valued at $1 billion or more, according to 451 Research’s M&A KnowledgeBase. While deal volume has remained consistent year over year through the first quarter of 2016, values have decreased. In Q1 2015, there were 1,040 deals with an aggregate total of $121 billion, while Q1 2016 saw 1,029 deals worth an aggregate $73 billion.
The survey – a partnership between MoFo and tech market intelligence firm 451 Research now in its ninth 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 April and had 121 participants, including C-suite executives (22 percent), corporate and business development executives (25 percent), investment banking and financial advisers (33 percent), general counsel and other in-house legal professionals (eight percent), and venture capital and private equity investors (six percent), among others.
“The level of tech M&A activity in 2015 set the bar very high, so it’s not surprising that dealmakers are predicting a change in the deal cycle,” Robert Townsend, co-chair of Morrison & Foerster’s Global M&A Practice Group, said. “Many companies have paused to assess the market, integrate buys from last year, or evaluate their growth strategies. Executives still expect dealmaking activity to continue, but without the high velocity of blockbuster acquisitions we’ve seen over the last couple of years.”
Other key findings from the M&A Leaders’ Survey include:
Nearly two-thirds of the dealmakers (64 percent) said private companies were likely to be sold for less during the remaining months of 2016 than they would have sold for in the same period last year. The gulf between buyers and sellers expectations is significant. Three-quarters of respondents (76 percent) said valuations that acquirers have been willing to pay in the past half-year have come down, while only half (52 percent) said target companies have lowered their valuation expectations.
More than half of the survey respondents (58 percent) expect the number of tech IPOs in 2016 to fall short of what happened in 2015, which was already the lowest level of activity since the last recession. Dealmakers expect an eventual rebound in IPOs, but not for several years.