Tech M&A Spending Increases 17% in 2011 as Number of Transactions Hits a Five-Year High

Led by multibillion-dollar strategic deals from Hewlett Packard (NYSE: HPQ) Google (NASDAQ:GOOG), Microsoft (NASDAQ: MSFT), SAP (NYSE:SAP), Texas Instruments (NYSE:TXN) and others, technology acquirers increased M&A spending for the second year in a row in 2012. Acquirers spent $219bn to purchase 3,690 information technology, telecommunications and Internet companies around the world last year, a 17% increase in spending and a 13% increase in number of deals from 2010. The total deal count hit its highest level since 2006, as M&A activity continues to dig out from its downturn in the recession of 2008-2009. The data, released today, is available to subscribers of 451 Research’s M&A KnowledgeBase.

“The fact that deal-makers managed to generate an increase in spending last year is remarkable given the turmoil that has shaken the financial markets since summer," said Brenon Daly, Research Director for M&A at 451 Research. Daly noted that just two of the 10 largest deals of 2011 came in the final four months of the year, when concerns about Europe’s debt crisis reached their highest point.

Much of the increase in activity in 2011 can be explained by growth in acquisitions outside of North America as US buyers increased their cash outlays for international targets. M&A spending on non-North American targets increased 48% year-over-year while the number of deals increased 28%.

Private equity firms did little to contribute to the increase in spending. While the total number of private equity-sponsored transactions increased by 44% in 2012, their total outlays increased only seven percent from the prior-year level, accounting for 14% of the past year’s tech spending, a couple of percentage points less than financial buyers represented in 2010. In fact, there wasn’t a single private equity transaction among the 10 largest deals of 2011 – the first time that has happened since 2008.

Among the significant transactions of the past year:

-Google, looking to bolster its mobile business through both hardware and patents, paid $12.5bn for Motorola Mobility, spending more than it has spent, collectively, on the more than 100 deals it had announced up to the point.

- In early December, SAP inked the largest software-as-a-service transaction ever, spending $3.65bn to acquire human capital management software vendor SuccessFactors (NASDAQ:SFSF).

-Hewlett-Packard, looking to jumpstart its software business, paid a startlingly high premium to take home British information management vendor Autonomy. The $11.7bn price tag represents the largest software deal in seven years, but also contributed to the ouster of the architect of the deal (Leo Apotheker) after less than a year as HP’s chief executive.

- Texas Instruments’s $6.5bn acquisition of National Instruments (NYSE: NSM) stands as the largest semiconductor deal yet by a strategic buyer.

- Microsoft’s $8.5bn purchase of Skype marked the software giant’s largest acquisition.

- And a tech consortium’s purchase of Nortel patents for $4.5bn underscored the growing importance of having legal defense of IP, particularly in the rapidly emerging wireless sector.

More growth expected for 2012

Tech M&A professionals expect deal growth to continue in 2012, according to recent surveys of M&A professionals by 451 Research. In the surveys, completed in early December, 56% of corporate acquirers and 67% of senior investment bankers said they expect to see an increase in technology M&A this year. Further, when asked about the overall climate for M&A in 2012, three times the number of corporate development executives projected that it would get better rather than worsen (43% vs. 14%). That said, financial crises in both Europe and the U.S. will weigh heavily on M&A. Two-thirds of the corporate buyers said tech M&A would likely pick up if European leaders could make 'meaningful progress' in their debt crisis.

“Without a doubt, the on-going economic turbulence in Europe is creating a number of headwinds for deal-makers right now,” said 451 Research's Daly. “To get a deal done, buyers need both currency and confidence. While most tech companies have record levels of cash to spend, the outlook for the companies they can spend it on is fairly murky. That’s causing some buyers to hold off on acquisitions. And so far, European leaders have done precious little to restore confidence, much less resolve the crisis.”

Notes: Tech M&A spending totals from 451 Research are based on announced transactions, and include both officially announced deal values and our analysts’ proprietary deal-value estimates for key transactions across core IT, telecommunications, Internet and IT services categories globally. The surveys, completed by 451 Research in the first week of December, 2011, drew responses from 112 technology corporate development executives and from 130 senior technology investment bankers.

For additional information on 451 Research, survey results and the 451 M&A KnowledgeBase, go to: www.the451research.com.

About 451 Research

451 Research, a division of The 451 Group, is focused on the business of enterprise IT innovation. The company’s analysts provide critical and timely insight into the competitive dynamics of innovation in emerging technology segments. Business value is delivered via daily concise and insightful published research, periodic deeper-dive reports, data tools, market-sizing research, analyst advisory, and conferences and events. Clients of the company – at vendor, investor, service-provider and end-user organizations – rely on 451 Research’s insight to support both strategic and tactical decision-making. 451 Research is headquartered in New York, with offices in key locations, including San Francisco, Washington DC, London, Boston, Seattle and Denver.