UPDATED 03:43 EDT / JULY 11 2016

NEWS

Tech M&As in the doldrums, cloud & security sectors stay hot

A new report from London-based acquisition and merger tracking firm Mergermarket has confirmed what we already knew – that M&A activity has been on the slow side this year, after booming throughout 2015.

Mergermarket said the sharp decline in M&As among technology, media and telecommunications firms was due to a “rebalancing” in these sectors following almost six consecutive years of steady growth. In the first half of 2016, there were an estimated 1,363 M&A deals worth a combined $223.1 billion. While that’s still a big pile of cash, it’s almost 41 percent less than the value of M&A deals in the same period in 2015.

As a result, the first half of 2016 was “the weakest [first half] deal value and count since 2013.”

The largest IT deal in the first half of the year was China Great Wall Computer Shenzhen Co.’s $4.7 billion acquisition of Greatwall Information Industry Co. Mergermarket said that most of the top M&A deals this year involved Chinese companies, many of which are flush with cash. As for the largest deal involving North American firms, that honor goes to Symantec Corp., which recently agreed a deal to buy out Austrian cloud and network security provider Blue Coat Systems.

“Many technology companies are at the beginning of their innovation life cycle, and as a consequence less mature businesses are coming to market commanding smaller price tags,” the analyst firm said in the report [PDF].

First-half mergers and acquisitions targeting technology firms (1,025 deals worth $152 billion) highlighted the trend, it added, accounting for a nearly 26 percent value decrease year-on-year while the total number of tech deals declined by 147.

While the number of Chinese firms seeking out M&A deals seems to be rising, European firms accounted for the largest decline in activity. As with many other recently published forecasts, Mergermarket noted that the U.K.’s surprising decision to leave the European Union would likely have a negative impact on deal activity.

“A period of political turmoil could potentially lead to a slump in activity for U.K. tech M&A, particularly within London, which has been established as a hub for [financial technology] investment,” it noted.

Amid such a lean spell for mergers and acquisitions, it seems that cloud and security-focused companies stand out as targets for the few companies that are looking to expand. According to Mergermarket, “everything is for sale” in these two sectors, while mobile-focused companies and those with products focused on “new operating systems” are also targets.

Despite the slump, Mergermarket notes that we’ll likely see an uptick in M&A activity with several big players widely expected to make moves in the near future. It cited Oracle and IBM as two companies that will likely continue their shopping sprees in the near future, with both firms expected to focus on vertical acquisitions in sectors like analytics, cloud services (particularly those that provide services to utilities) and healthcare. Mergermarket cited Oracle’s recent deal to acquire energy analytics firm Opower for $532 million as one example.

Lastly, Mergermarket is fully expecting Apple to use its substantial cash reserves to make an acquisition in the near future.

Image credit: geralt via pixabay

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