The technology sector experienced one its biggest booms in mergers and acquisitions activity since the dot com bubble in the early 2000’s, edging out even the healthcare sector for largest dollar value in deals. Private equity firms contributed significantly to the boom, either acquiring companies in the sector or divesting their ownership to other buyers. The total value of tech-sector targeted M&A globally stood at $571.5 billion through slightly more than three quarters in 2015, more than $100 billion for that same period a year earlier. Through the first three quarters of 2015, the sector accounted for slightly less than fifteen percent of overall M&A activity.

Daniel Ives, a senior research analyst at FBR Capital Markets, said:

a lot of these companies are seeing a bipolar spending environment, and the boards and the CEOs are taking off the rose-colored glasses and they are making the tough decisions, realizing it’s either get acquired or strategically buckle up and get ready for the next growth phase, which could be these companies making acquisitions themselves.

One of the biggest drivers in the tech M&A boom is the semiconductor industry. A recent FBR & Co. report found that about 11% of U.S. semiconductor companies had been acquired in 2014, projecting that about one-third would be acquired in 2015. Although booming M&A markets might suggest strength in the broader economy, a strong dollar and little pressure on prices have dampened both international export prospects in addition to limiting the growth in the top line for some of these companies. The M&A booms provide companies with ability to lower expenses, such reducing management costs, redundant R&D, and increased product efficiencies. Recent reports have indicated that tech deals have eliminated more than ten percent of expenses in large acquisitions and as much as twenty percent in smaller acquisitions. This expense reduction help companies in sectors with slower top line growth increase their margins and per share earnings. This strategy allows these tech companies to increase shareholder value and ultimately prevent them from either having to divest part of their operations to focus on core competencies or becoming targets themselves.

As 2015 crossed the finish line ending the biggest year in M&A in the country’s history, it is evident that the tech sector has not only played a large role, but also been booming to eclipse other very busy sectors in their own M&A rise. Given the anticipation of further volatility in the broader markets and shaky demand in the global economy, it is unclear whether or not similar trends from 2015 will carry over into the current year. Ultimately, only time will tell whether the tech sector’s M&A boom will keep booming through the new year.

 

Graham Jones

 

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