Cloud Fragmentation, Social Media Driving Tech M&A: PwC
Positive spend growth, large cash balances, and a predisposition to mergers and acquisitions (M&A) driven by innovation, strategic objectives, and anticipated synergies are likely to keep the technology industry in the top spot for M&A activity in 2012, according to the latest report released by accountancy firm PricewaterhouseCoopers (PwC). The company's 2012 US Technology M&A report provides an analysis of 2011 tech deals and outlook for 2012. The report noted innovation and time to market continue to fuel M&A in the tech sector with increased activity particularly among tech companies buying up players in the fragmented cloud market and social media markets moving center stage with both announced and completed initial public offerings (IPOs).
While technology spend forecasts have been reduced, the technology industry has generally bucked the negative trends experienced by the majority industries over the last few years. Despite unease in the stock market, profitable tech businesses managed to sock away cash during the year, increasing the coffers of the top 20 US technology companies to over $300 billion of cash and marketable investments by year end, the report said--- more than the total transaction value of closed technology deals in the last three years combined.
Shortly after the close of 2011, IT research firm Gartner lowered its 2012 technology spend forecast to 3.7 percent, and analytics specialist Forrester followed suit with a forecast of 5.2 percent. Gartner and Forrester estimate technology spend in 2011 totaled 6.9 percent and 9.7 percent, respectively, based on their individual metrics. "The decrease in anticipated IT spend in 2012, just over half that of 2011, provides an interesting view of growth in technology businesses in the coming year," PwC's report said.
During the year, the market witnessed the public offerings of Groupon, Zynga, LinkedIn, Pandora, and other tech-focused businesses. While overall IPO filings declined in terms of volume and value in 2011 compared to 2010 due to market volatility experienced during the year, key technology players have not completely written off IPO ambitions. Not long after year-end, the much-anticipated IPO filing of Facebook was announced, signaling what is anticipated to be one of the largest technology IPOs in history.
In addition, PwC noted that several companies announced transformational changes in 2011, which might signal more changes to come as competitors adopt similar strategies to stay ahead of strategic shifts by tech players. For example, Google announced an entrance into the mobile handset market in a big way with the acquisition of Motorola Mobility, while HP announced the spin-off of its personal systems group (PSG) business (later canceled) at the same time it announced the acquisition of Autonomy. "We expect a continuation of shifts in strategic direction resulting in sizable acquisitions in the coming year," the report said.
With nearly 2 billion Internet users across the globe, the volume of data (both structured and unstructured) in the form of emails, tweets, blogs, instant messages, videos, photos, and webpages, is growing at an exponential pace. Based on these facts, the report noted information, collected through social media platforms, websites, and mobile providers, has the potential to provide businesses with specific information about consumer demographics and interests like never before. "Businesses that can provide the software tools to collect, organize, analyze, and summarize findings from this data will become highly relevant in the near term and likely targets for a variety of businesses looking to put big data to work," the report said.