|By PR Newswire||
|October 31, 2012 12:52 PM EDT||
NEW YORK and SAN FRANCISCO, Oct. 31, 2012 /PRNewswire/ -- A more subdued picture emerges from the latest survey of technology dealmakers conducted by global law firm Morrison & Foerster and syndicated technology research and advisory firm 451 Research. The percentage of technology insiders reporting an increase in M&A activity during the previous six months fell sharply compared to our inaugural survey in April.
Prospects for Dealmaking
Newly released data from the M&A Leaders Survey shows that the number of tech industry executives reporting a recent jump in deal-making – 39% – was nearly identical to those experiencing a decline – 37%. That's a significant narrowing of the gap from April's survey, when more than twice as many respondents reported an uptick in M&A activity (51%) compared with those who were seeing a decline (23%).
Notably, most dealmakers cite uncertain prospects for the U.S. economy as the prime cause of their reluctance to execute transactions. More than 70% of the 300 respondents participating said doubts about the sustainability of economic growth in the U.S. have been a significant drag on M&A activity in 2012. Macroeconomic worries eclipsed even high target company valuations as dealmakers' top concern, reversing the order of "deal hindrances" from the previous survey. Other key deal roadblocks cited include the upcoming presidential election, the persistent European debt crisis, and anxiety over the so-called "fiscal cliff" facing the U.S. in January.
Yet despite the increased pessimism, there are clearly pockets of positive sentiment among technology's dealmaking community. For example, the 49% of respondents who say they expect acquisition activity to increase in the next six months is nearly three times the 17% who anticipate a drop-off in deals.
The MoFo – 451 M&A Leaders Survey
The M&A Leaders Survey, conducted semi-annually by MoFo and 451 Research, is designed to take the pulse of tech industry insiders on the dealmaking market. Over half of the 300 respondents reporting are in-house executives - 19% of whom hold C-level positions, with 8% representing the general counsel's office, and the rest corporate and business development managers. One third are professionals at investment banks and financial advisory firms.
Respondents hail from all corners of the tech world. The majority of corporate respondents work in information technology businesses, including infrastructure and applications software, IT services, semiconductors, systems/hardware, telecom, Internet content and e-commerce, and hosting and managed services. Other segments represented include life sciences/biotech, and cleantech. Twenty-nine percent of those surveyed are based in and around Silicon Valley.
In addition to reporting on M&A spending trends and market concerns, respondents addressed questions relating to deal valuation and merger terms, as well as exclusivity agreements. The survey also delves into several "inside baseball" topics of special interest to dealmakers, including post-closing indemnity claims and provisions for holdbacks and escrow payments.
Highlights from the Survey
Here are some detailed highlights from the latest M&A Leaders Survey from Morrison & Foerster and 451 Research:
1. Recent Deal Flow: Going Both Ways – As noted above, dealmakers are split on the recent state of the market: 39% report an increased level of M&A activity over the past six months at the companies they work for or advise, while 37% report less activity. Meanwhile, 24% describe their deal flow as being consistent with the same period in prior years. These equal swings in perception could well reflect real-life ebb-and-flow distinctions between certain subsectors of the overall technology space, with cloud and mobile apps on the upswing, and social media and semiconductors cooling off.
2. Tempered Optimism – The current survey respondents are still leaning toward bullishness on near-term prospects, just not as much so as those surveyed this past spring. The 49% who say they expect acquisition activity to increase between now and the end of the first quarter of 2013 is nearly three times the 17% who anticipate a drop-off in deals. But these figures are notably less bullish than last April's findings, when 59% projected activity in the coming six months would increase and only 8% anticipated a decline. In both surveys, a solid one-third hold to the middle ground that M&A activity in the six months to come will be unchanged – though the baseline for that potential change seems to have contracted.
3. Macro Reality Check – Statistically, 2012 has been an off year on the deal front. 451 Research notes that through the first three quarters, aggregate global spending on technology M&A stood at around $116 billion, down 36% from the same period a year ago and representing a 22% drop from 2010. Global deal spending for 2012 is on track to come in at the lowest level since the recession-plagued year of 2009, breaking a two-year streak of rising expenditures. The M&A Leaders Survey probes what factors may have contributed most to the decline and found that the greatest number of respondents – 7 out of 10 – blame ongoing doubts about U.S. economic growth. That was followed by uncertainty over the European debt crisis (58% labeling it a strong factor), lack of clarity over the likelihood of tax hikes and spending cuts in 2013 (53%), and uncertainty about the outcome of the November 6 presidential election (46%).
4. High Prices and Other Hindrances – Respondents also ranked specific market factors that have been holding their dealmaking in check. Top of the list is the concern that price expectations of target companies are too high – 66% of respondents single out prices as a strong deal inhibitor, with several noting this year's run-up in stock indexes. Other top perceived deal hindrances are: a lack of qualified targets; due diligence issues; depressed stock price of the acquiring company; and an inability to obtain financing.
5. Valuations: More or Less? – Possibly tempering enthusiasm among many who believe the M&A market will pick up, respondents are of noticeably mixed opinions on private company valuations: 47% believe that acquisition pricing for private companies will remain unchanged over the next six months, while 28% expect a rise in private company valuations and only 25% call for an increase in deal values. That's a sharp reversal from last April's survey, when 43% predicted higher private company valuations and only 10% forecast a drop.
Robert Townsend, co-chair of Morrison & Foerster's Global M&A Practice, says the somewhat scattered sentiment is not unexpected. "The results illustrate some strong differences of opinion on the vibrancy of the deal market, and it's easy to come away thinking that many tech insiders have turned more cautious, especially in light of the pronounced turnabout in projected valuations from our last survey. It's worth noting, however, that in dealmaking – as in baseball – it sometimes takes just one or two wins to restore momentum. Given the large cash positions held by many major tech companies, along with continued rock-bottom interest rates and opportunities for companies to make some bold strategic moves, we understand the view held by many of those surveyed who expect to see a burst of deals heading into the first quarter of 2013."
Indeed, Mr. Townsend has seen that movement first hand. His M&A team at Morrison & Foerster is acting as lead counsel to SoftBank in its recently announced $20.1 billion investment in Sprint Nextel – with a reported enterprise value of around $43 billion, it is one of the biggest announced U.S. deals of the year. It is the largest overseas acquisition ever by a Japanese company, and the largest U.S. investment ever from Asia.
Brenon Daly, research director for M&A at 451 Research in San Francisco, noted that respondents did agree on one thing: the factors tamping down transactions in 2012. "Although the recession officially has been over for a couple years, the cloudy outlook for economic growth continues to have many dealmakers sitting on the sidelines, especially since so many of them feel that potential acquisition targets remain overpriced," he says. "In taking a closer look at the numbers, we see six times as many respondents saying the precariousness of the US economy is crimping deal-flow compared with those that saw no impact. When executives and their advisors are more concerned with the economic outlook than the valuation of target companies, you can appreciate why caution is the watchword for M&A right now."
Other survey findings of particular interest to dealmakers:
6. Term Sheets of Endearment – Respondents place considerable importance on term sheets in getting a deal done; most agree they are critical and that the bulk of major business issues are won or lost during term-sheet negotiations. However, nearly 44% concur that the parties frequently deviate from their original terms in getting to a definitive agreement. Respondents also overwhelmingly agree that term sheets should avoid binding clauses – aside from exclusivity or confidentiality (77%) – and that a good term sheet should address the time schedule for the transaction (82%).
7. Use of No-Shop Agreements – Tech executives and other respondents assessed the value of exclusivity agreements—so-called no-shop provisions giving buyers a fixed period of time to negotiate a friendly deal without fear the target will pursue alternative offers. While the majority of respondents – 60% – agree that bidders would be foolish to expend significant time and money on a transaction without having a no-shop agreement in place, more than a quarter of those surveyed fear that they are "frequently breached by targets, but there is no practical way to enforce them." Not surprisingly, 60% feel that no-shops tilt the playing field in favor of the bidder. But targets hold their own trump card. Nearly 82% of respondents support the position that a target company shouldn't consent to a no-shop "until the bidder has committed to a price and positions on most of the material terms of the deal."
8. Accounting for Indemnity Claims – Even the best due diligence can't always detect the risks when two companies combine – environmental, regulatory, shareholder, financial and other problems often have a way of rearing their heads. MoFo and 451 Research were interested in learning to what degree tech buyers obtained post-closing assurances over the past two years – either through escrow arrangements or by holding back a portion of the acquisition price – against post-closing liabilities. More than a third of respondents – 35% – say that post-closing indemnity provisions typically represent 11-15% of the total deal value. A slight majority (53%) saw the average as less than 11% – with 18% seeing 5% or less held back or placed in escrow – while 12% saw the average as exceeding 16%. Respondents also noted that public target transactions generally do not have escrows.
9. When Claims Go "Beyond the Escrow" – The good news for target companies is that indemnity claims are a relatively rare event. More than 73% of respondents say that buyers brought claims on only 10% or less of their M&A transactions in the past two years, including 40% who said that buyers in their transactions made no indemnity claims in that time. A handful of respondents – 5.3% – saw claims on more than half their deals. Respondents reported only a smattering of instances in which claims seeking to go "beyond the escrow" or holdback were made or threatened against former shareholders of the target company.
The next M&A Leaders Survey will be conducted and announced in the spring of 2013.
About Morrison & Foerster: Morrison & Foerster (www.mofo.com) is one of the world's premiere advisors on mergers and acquisitions, with a strong expertise in technology-related deals. The firm's global corporate group has played a lead role in many of the largest technology M&A transactions of the past two years. Recent advisory assignments included:
- SoftBank in its announced $20.1 billion investment for a 70% interest in Sprint-Nextel (announced Oct. 2012)
- SoftBank in its $2.3 billion acquisition of wireless carrier eAccess (announced Oct. 2012)
- Hitachi in the $4.8 billion sale of its hard disk drive and data storage business, Hitachi Global Storage Technologies, to Western Digital (closed Mar. 2012)
- Intel in its $7.7 billion acquisition of McAfee (closed Feb. 2011)
- Intel in its $4.1 billion investment in Dutch chip-maker ASML (announced July 2012)
- Intel in its $1.4 billion acquisition of the Wireless Solutions Business of Infineon Technologies AG (closed Jan. 2011)
- DaVita Inc. in its $4.42 billion proposed acquisition of HealthCare Partners Holdings (announced May 2012)
- Novellus Systems, Inc. in its $3.3 billion sale to Lam Research Corp, the largest announced stock-for-stock tech deal in 2011
- Terumo Corporation, in its $2.6 billion acquisition of CaridianBCT (closed April 2011)
- Tokyo-based DRAM chip-maker Elpida in its proposed $2.5 billion acquisition by Micron Technologies, one of Japan's largest inbound M&A deals ever
- Toshiba Corporation in its $2.3 billion acquisition of Landis+Gyr AG (closed July 2011)
- The special committee of 99 Cents Only Stores in a $1.6 billion "going private" transaction (closed Oct. 2011)
- Toshiba Tec, in its acquisition of IBM's Retail Store Solutions business for approximately $850 million (announced April 2012)
About 451 Research: 451 Research (www.451research.com), a division of The 451 Group, is focused on the business of enterprise IT innovation. The company's analysts provide insight into the competitive dynamics of emerging technology segments, with a deep focus on mergers and acquisitions. Business value is delivered via daily published research, periodic deeper-dive reports, data tools, market-sizing research, analyst advisory, and conferences and events.
The company's clients – including vendor, investor, service-provider and end-user organizations – rely on 451 Research to support both strategic and tactical decision-making. 451 Research is headquartered in New York, with offices in key technology and financial markets, including San Francisco, Washington DC, London, Boston, Seattle and Denver.
Allan Ripp 212-262-7477 email@example.com
Amy Merriweather 415-268-6063 firstname.lastname@example.org
SOURCE Morrison & Foerster LLP; 451 Research
For IoT to grow as quickly as analyst firms’ project, a lot is going to fall on developers to quickly bring applications to market. But the lack of a standard development platform threatens to slow growth and make application development more time consuming and costly, much like we’ve seen in the mobile space. In his session at @ThingsExpo, Mike Weiner, Product Manager of the Omega DevCloud with KORE Telematics Inc., discussed the evolving requirements for developers as IoT matures and conducted a live demonstration of how quickly application development can happen when the need to comply wit...
Jul. 31, 2015 08:45 AM EDT Reads: 305
Explosive growth in connected devices. Enormous amounts of data for collection and analysis. Critical use of data for split-second decision making and actionable information. All three are factors in making the Internet of Things a reality. Yet, any one factor would have an IT organization pondering its infrastructure strategy. How should your organization enhance its IT framework to enable an Internet of Things implementation? In his session at @ThingsExpo, James Kirkland, Red Hat's Chief Architect for the Internet of Things and Intelligent Systems, described how to revolutionize your archit...
Jul. 30, 2015 07:30 PM EDT Reads: 1,404
SYS-CON Events announced today that HPM Networks will exhibit at the 17th International Cloud Expo®, which will take place on November 3–5, 2015, at the Santa Clara Convention Center in Santa Clara, CA. For 20 years, HPM Networks has been integrating technology solutions that solve complex business challenges. HPM Networks has designed solutions for both SMB and enterprise customers throughout the San Francisco Bay Area.
Jul. 30, 2015 03:45 PM EDT Reads: 460
MuleSoft has announced the findings of its 2015 Connectivity Benchmark Report on the adoption and business impact of APIs. The findings suggest traditional businesses are quickly evolving into "composable enterprises" built out of hundreds of connected software services, applications and devices. Most are embracing the Internet of Things (IoT) and microservices technologies like Docker. A majority are integrating wearables, like smart watches, and more than half plan to generate revenue with APIs within the next year.
Jul. 30, 2015 02:30 PM EDT Reads: 112
The Internet of Everything (IoE) brings together people, process, data and things to make networked connections more relevant and valuable than ever before – transforming information into knowledge and knowledge into wisdom. IoE creates new capabilities, richer experiences, and unprecedented opportunities to improve business and government operations, decision making and mission support capabilities.
Jul. 30, 2015 01:45 PM EDT Reads: 274
Growth hacking is common for startups to make unheard-of progress in building their business. Career Hacks can help Geek Girls and those who support them (yes, that's you too, Dad!) to excel in this typically male-dominated world. Get ready to learn the facts: Is there a bias against women in the tech / developer communities? Why are women 50% of the workforce, but hold only 24% of the STEM or IT positions? Some beginnings of what to do about it! In her Opening Keynote at 16th Cloud Expo, Sandy Carter, IBM General Manager Cloud Ecosystem and Developers, and a Social Business Evangelist, d...
Jul. 30, 2015 12:00 PM EDT Reads: 2,062
In his keynote at 16th Cloud Expo, Rodney Rogers, CEO of Virtustream, discussed the evolution of the company from inception to its recent acquisition by EMC – including personal insights, lessons learned (and some WTF moments) along the way. Learn how Virtustream’s unique approach of combining the economics and elasticity of the consumer cloud model with proper performance, application automation and security into a platform became a breakout success with enterprise customers and a natural fit for the EMC Federation.
Jul. 30, 2015 09:00 AM EDT Reads: 2,164
The Internet of Things is not only adding billions of sensors and billions of terabytes to the Internet. It is also forcing a fundamental change in the way we envision Information Technology. For the first time, more data is being created by devices at the edge of the Internet rather than from centralized systems. What does this mean for today's IT professional? In this Power Panel at @ThingsExpo, moderated by Conference Chair Roger Strukhoff, panelists addressed this very serious issue of profound change in the industry.
Jul. 29, 2015 03:00 PM EDT Reads: 1,278
Discussions about cloud computing are evolving into discussions about enterprise IT in general. As enterprises increasingly migrate toward their own unique clouds, new issues such as the use of containers and microservices emerge to keep things interesting. In this Power Panel at 16th Cloud Expo, moderated by Conference Chair Roger Strukhoff, panelists addressed the state of cloud computing today, and what enterprise IT professionals need to know about how the latest topics and trends affect their organization.
Jul. 29, 2015 02:00 PM EDT Reads: 1,188
It is one thing to build single industrial IoT applications, but what will it take to build the Smart Cities and truly society-changing applications of the future? The technology won’t be the problem, it will be the number of parties that need to work together and be aligned in their motivation to succeed. In his session at @ThingsExpo, Jason Mondanaro, Director, Product Management at Metanga, discussed how you can plan to cooperate, partner, and form lasting all-star teams to change the world and it starts with business models and monetization strategies.
Jul. 28, 2015 04:30 PM EDT Reads: 1,765
Converging digital disruptions is creating a major sea change - Cisco calls this the Internet of Everything (IoE). IoE is the network connection of People, Process, Data and Things, fueled by Cloud, Mobile, Social, Analytics and Security, and it represents a $19Trillion value-at-stake over the next 10 years. In her keynote at @ThingsExpo, Manjula Talreja, VP of Cisco Consulting Services, discussed IoE and the enormous opportunities it provides to public and private firms alike. She will share what businesses must do to thrive in the IoE economy, citing examples from several industry sectors.
Jul. 28, 2015 11:00 AM EDT Reads: 2,043
There will be 150 billion connected devices by 2020. New digital businesses have already disrupted value chains across every industry. APIs are at the center of the digital business. You need to understand what assets you have that can be exposed digitally, what their digital value chain is, and how to create an effective business model around that value chain to compete in this economy. No enterprise can be complacent and not engage in the digital economy. Learn how to be the disruptor and not the disruptee.
Jul. 27, 2015 10:00 AM EDT Reads: 2,032
Akana has released Envision, an enhanced API analytics platform that helps enterprises mine critical insights across their digital eco-systems, understand their customers and partners and offer value-added personalized services. “In today’s digital economy, data-driven insights are proving to be a key differentiator for businesses. Understanding the data that is being tunneled through their APIs and how it can be used to optimize their business and operations is of paramount importance,” said Alistair Farquharson, CTO of Akana.
Jul. 27, 2015 09:00 AM EDT Reads: 327
Business as usual for IT is evolving into a "Make or Buy" decision on a service-by-service conversation with input from the LOBs. How does your organization move forward with cloud? In his general session at 16th Cloud Expo, Paul Maravei, Regional Sales Manager, Hybrid Cloud and Managed Services at Cisco, discusses how Cisco and its partners offer a market-leading portfolio and ecosystem of cloud infrastructure and application services that allow you to uniquely and securely combine cloud business applications and services across multiple cloud delivery models.
Jul. 27, 2015 08:00 AM EDT Reads: 1,905
The enterprise market will drive IoT device adoption over the next five years. In his session at @ThingsExpo, John Greenough, an analyst at BI Intelligence, division of Business Insider, analyzed how companies will adopt IoT products and the associated cost of adopting those products. John Greenough is the lead analyst covering the Internet of Things for BI Intelligence- Business Insider’s paid research service. Numerous IoT companies have cited his analysis of the IoT. Prior to joining BI Intelligence, he worked analyzing bank technology for Corporate Insight and The Clearing House Payment...
Jul. 26, 2015 09:00 PM EDT Reads: 1,576
"Optimal Design is a technology integration and product development firm that specializes in connecting devices to the cloud," stated Joe Wascow, Co-Founder & CMO of Optimal Design, in this SYS-CON.tv interview at @ThingsExpo, held June 9-11, 2015, at the Javits Center in New York City.
Jul. 25, 2015 02:00 PM EDT Reads: 395
SYS-CON Events announced today that CommVault has been named “Bronze Sponsor” of SYS-CON's 17th International Cloud Expo®, which will take place on November 3–5, 2015, at the Santa Clara Convention Center in Santa Clara, CA. A singular vision – a belief in a better way to address current and future data management needs – guides CommVault in the development of Singular Information Management® solutions for high-performance data protection, universal availability and simplified management of data on complex storage networks. CommVault's exclusive single-platform architecture gives companies unp...
Jul. 25, 2015 01:00 PM EDT Reads: 1,959
Electric Cloud and Arynga have announced a product integration partnership that will bring Continuous Delivery solutions to the automotive Internet-of-Things (IoT) market. The joint solution will help automotive manufacturers, OEMs and system integrators adopt DevOps automation and Continuous Delivery practices that reduce software build and release cycle times within the complex and specific parameters of embedded and IoT software systems.
Jul. 25, 2015 12:15 PM EDT Reads: 468
"ciqada is a combined platform of hardware modules and server products that lets people take their existing devices or new devices and lets them be accessible over the Internet for their users," noted Geoff Engelstein of ciqada, a division of Mars International, in this SYS-CON.tv interview at @ThingsExpo, held June 9-11, 2015, at the Javits Center in New York City.
Jul. 25, 2015 12:00 PM EDT Reads: 1,539
Internet of Things is moving from being a hype to a reality. Experts estimate that internet connected cars will grow to 152 million, while over 100 million internet connected wireless light bulbs and lamps will be operational by 2020. These and many other intriguing statistics highlight the importance of Internet powered devices and how market penetration is going to multiply many times over in the next few years.
Jul. 25, 2015 09:00 AM EDT Reads: 1,492