There’s been an evolution taking place across businesses of all types, regardless of industry. Companies far removed from the software bubble of Silicon Valley — involved in metal fabrication, distribution, warehousing, you name it — are becoming software and data companies in their own right, sometimes with larger programming workforces than software providers. Information from every corner of enterprises is generated, processed, shared and analyzed, requiring on-premises and cloud-based infrastructures, along with the people needed to make it happen.
Photo: Joe McKendrick
It perhaps should come as no surprise that many of the larger non-tech companies are buying tech companies to expand their technology prowess. It is interesting to see, however, that non-tech companies are taking the lead in technology-driven merger and acquisition activity as of late. High on their list of interests is building repertoire with the Internet of Things, along with cloud, big data and mobile.
These things, as a matter of fact, drove record M&A deal levels in the most recent quarter, a new analysis shows. Both tech and non-tech companies turned to M&A in numbers that made the third quarter of 2016 (July through September) a “blockbuster” quarter for global technology M&A value, according to EY’s latest quarterly Global Technology M&A report.
EY estimates that with $155.5 billion in disclosed value, the most recent quarter “is now the third-highest aggregate value quarter on record” for M&A. This marks an increase of 22 percent from the second quarter of 2016 and 138 percent year-over-year. At $349.4 billion, year-to-date aggregate value is 30 percent higher than what was the all-time record pace set by this time a year ago.
More than one-third of the companies making purchases, 35 percent, were non-tech firms, up from 18 percent in the previous quarter. Of the 135 deals in the third quarter with non-tech buyers, EY observes, “almost 30 targeted advertising and marketing technologies, more than any other technology besides cloud computing (which along with smart mobility continues to be a kind of background radiation for global technology deal making). More than 20 non-tech-buyer deals targeted big data analytics, nearly 15 targeted payments and financial services technology and more than 10 targeted health care information technology.
Non-tech buyers’ record value for the quarter came in large part as a result of seven deals at or above $1 billion, including the SoftBank Group–ARM megadeal. Another buying firm, telecom firm Verizon, is “using M&A to branch into IoT, including a broad approach and a connected-car focus,” EY’s analysts report. The world’s largest retailer, Walmart, signed a $3.3-billion deal for Jet.com, an e-commerce provider, with the aim “to accelerate the brick-and-mortar retailer’s transformation into offering a seamless digital-and-physical shopping experience by injecting a jolt of entrepreneurial spirit into the company.”
Among the remainder of the deal makers in the most recent quarter, 23 percent were private equity groups, up from 20 percent. Another 17 percent of the buyers were software/SaaS companies, down from 38 percent in the previous quarter. Among companies targeted, semiconductor companies comprised 35 percent of the deals, up from 15 percent in the previous quarter, suggesting strong impetus toward IoT. Software/SaaS companies were 30 percent of the mix being targeted, about the same as the second quarter.
IoT value nearly tripled year over year on the strength of four deals — including the quarter’s top deal by dollar value, SoftBank Group’s acquisition of ARM at $32.4 billion. In all, the four deals above $1 billion drove IoT deal values to $40.3 billion in this most recent quarter, or a 175-percent increase year over year. Year-to-date IoT-targeted deal making volume of 153 deals is up 34 percent over 2015, and year-to-date value of $51.6 billion is 62 percent.
SoftBank Group’s $32.4 billion deal for ARM “is only the latest big-ticket deal made in anticipation of the enormous potential of IoT technologies to disrupt and transform businesses and the economy,” the EY analysts state. ARM, best known for the microprocessors that power most smartphones, has been diversifying into IoT (including security) through multiple acquisitions. SoftBank, which began life as an internet technology company, is currently a multinational mobile telecommunications holding company — which classified it as a “non-tech buyer,” EY states,
Technology providers also had some big-ticket deals, reflecting ongoing transformation, the EY report also states. “Disruptive technologies such as cloud computing, smart mobility and big data analytics continue to drive business transformation in the third quarter of 2016.” Cloud computing continues to be a major factor, “To accelerate its transition to cloud computing, Oracle made a
$9.3 billion offer for NetSuite, which also counts Larry Ellison among its founders.” Hewlett-Packard Enterprise also had its second multi-billion dollar spin-merger in as many quarters, announcing, UK-based Micro Focus would acquire its business software division in an $8.8 billion deal. “While HPE viewed the software division as non-core, Micro Focus — which launched 40 years ago with a popular version of COBOL — today orients its business around helping enterprises extend the useful life of older systems, including integration with more recent technologies.”
Here are the biggest M&A deals that led in the third quarter of 2016:
- SoftBank Group Corporation buys ARM Holdings plc: $32.4 billion
- Analog Devices, Inc. buys Linear Technology Corporation: $14.9 billion
- Oracle Corporation buys NetSuite, Inc.: $9.3 billion
- Micro Focus International plc buys Software Business division of Hewlett-Packard Enterprise: $8.8 billion
- Verizon Communications, Inc. buys Operating business of Yahoo! Inc.: $4.8 billion
- Giant Investment and consortium of investors buys Playtika Ltd.: $4.4 billion
- Apollo Global Management LLC buys Rackspace Hosting, Inc.: $4.3 billion
- Platinum Equity LLC buys Network Power business from Emerson Electric Company: $4 billion
- ONEX Corporation/Baring Private Equity Asia buys Intellectual Property and Science business unit of Thomson Reuters Corporation: $3.6 billion
- Wal-Mart Stores, Inc. buys Jet.com, Inc.: $3.3 billion
(Disclosure: I have performed project work in the last 12 months for EY, mentioned in this post.)
