Click here to close now.

Welcome!

Websphere Authors: Liz McMillan, Carmen Gonzalez, Pat Romanski, Roger Strukhoff, Elizabeth White

News Feed Item

Nagging Concerns Over U.S. Economic Growth Temper Tech M&A Market

-- 7 of 10 respondents to Morrison Foerster/451 Research M&A Leaders' Survey cite U.S. economic uncertainty as primary reason for sluggish M&A spending

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.

Contacts:

Allan Ripp 212-262-7477 aripp@rippmedia.com



Amy Merriweather 415-268-6063 amerriweather@mofo.com


SOURCE Morrison & Foerster LLP; 451 Research

More Stories By PR Newswire

Copyright © 2007 PR Newswire. All rights reserved. Republication or redistribution of PRNewswire content is expressly prohibited without the prior written consent of PRNewswire. PRNewswire shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon.

@ThingsExpo Stories
SYS-CON Events announced today the IoT Bootcamp – Jumpstart Your IoT Strategy, being held June 9–10, 2015, in conjunction with 16th Cloud Expo and Internet of @ThingsExpo at the Javits Center in New York City. This is your chance to jumpstart your IoT strategy. Combined with real-world scenarios and use cases, the IoT Bootcamp is not just based on presentations but includes hands-on demos and walkthroughs. We will introduce you to a variety of Do-It-Yourself IoT platforms including Arduino, Raspberry Pi, BeagleBone, Spark and Intel Edison. You will also get an overview of cloud technologies s...
The best mobile applications are augmented by dedicated servers, the Internet and Cloud services. Mobile developers should focus on one thing: writing the next socially disruptive viral app. Thanks to the cloud, they can focus on the overall solution, not the underlying plumbing. From iOS to Android and Windows, developers can leverage cloud services to create a common cross-platform backend to persist user settings, app data, broadcast notifications, run jobs, etc. This session provides a high level technical overview of many cloud services available to mobile app developers, includi...
“In the past year we've seen a lot of stabilization of WebRTC. You can now use it in production with a far greater degree of certainty. A lot of the real developments in the past year have been in things like the data channel, which will enable a whole new type of application," explained Peter Dunkley, Technical Director at Acision, in this SYS-CON.tv interview at @ThingsExpo, held Nov 4–6, 2014, at the Santa Clara Convention Center in Santa Clara, CA.
Health care systems across the globe are under enormous strain, as facilities reach capacity and costs continue to rise. M2M and the Internet of Things have the potential to transform the industry through connected health solutions that can make care more efficient while reducing costs. In fact, Vodafone's annual M2M Barometer Report forecasts M2M applications rising to 57 percent in health care and life sciences by 2016. Lively is one of Vodafone's health care partners, whose solutions enable older adults to live independent lives while staying connected to loved ones. M2M will continue to gr...
SYS-CON Events announced today that Ciqada will exhibit at SYS-CON's @ThingsExpo, which will take place on June 9-11, 2015, at the Javits Center in New York City, NY. Ciqada™ makes it easy to connect your products to the Internet. By integrating key components - hardware, servers, dashboards, and mobile apps - into an easy-to-use, configurable system, your products can quickly and securely join the internet of things. With remote monitoring, control, and alert messaging capability, you will meet your customers' needs of tomorrow - today! Ciqada. Let your products take flight. For more inform...
Containers and microservices have become topics of intense interest throughout the cloud developer and enterprise IT communities. Accordingly, attendees at the upcoming 16th Cloud Expo at the Javits Center in New York June 9-11 will find fresh new content in a new track called PaaS | Containers & Microservices Containers are not being considered for the first time by the cloud community, but a current era of re-consideration has pushed them to the top of the cloud agenda. With the launch of Docker's initial release in March of 2013, interest was revved up several notches. Then late last...
While not quite mainstream yet, WebRTC is starting to gain ground with Carriers, Enterprises and Independent Software Vendors (ISV’s) alike. WebRTC makes it easy for developers to add audio and video communications into their applications by using Web browsers as their platform. But like any market, every customer engagement has unique requirements, as well as constraints. And of course, one size does not fit all. In her session at WebRTC Summit, Dr. Natasha Tamaskar, Vice President, Head of Cloud and Mobile Strategy at GENBAND, will explore what is needed to take a real time communications ...
SYS-CON Media announced today that @WebRTCSummit Blog, the largest WebRTC resource in the world, has been launched. @WebRTCSummit Blog offers top articles, news stories, and blog posts from the world's well-known experts and guarantees better exposure for its authors than any other publication. @WebRTCSummit Blog can be bookmarked ▸ Here @WebRTCSummit conference site can be bookmarked ▸ Here
Dave will share his insights on how Internet of Things for Enterprises are transforming and making more productive and efficient operations and maintenance (O&M) procedures in the cleantech industry and beyond. Speaker Bio: Dave Landa is chief operating officer of Cybozu Corp (kintone US). Based in the San Francisco Bay Area, Dave has been on the forefront of the Cloud revolution driving strategic business development on the executive teams of multiple leading Software as a Services (SaaS) application providers dating back to 2004. Cybozu's kintone.com is a leading global BYOA (Build Your O...
SYS-CON Events announced today that GENBAND, a leading developer of real time communications software solutions, has been named “Silver Sponsor” of SYS-CON's WebRTC Summit, which will take place on June 9-11, 2015, at the Javits Center in New York City, NY. The GENBAND team will be on hand to demonstrate their newest product, Kandy. Kandy is a communications Platform-as-a-Service (PaaS) that enables companies to seamlessly integrate more human communications into their Web and mobile applications - creating more engaging experiences for their customers and boosting collaboration and productiv...
SYS-CON Events announced today that BroadSoft, the leading global provider of Unified Communications and Collaboration (UCC) services to operators worldwide, has been named “Gold Sponsor” of SYS-CON's WebRTC Summit, which will take place on June 9-11, 2015, at the Javits Center in New York City, NY. BroadSoft is the leading provider of software and services that enable mobile, fixed-line and cable service providers to offer Unified Communications over their Internet Protocol networks. The Company’s core communications platform enables the delivery of a range of enterprise and consumer calling...
The 17th International Cloud Expo has announced that its Call for Papers is open. 17th International Cloud Expo, to be held November 3-5, 2015, at the Santa Clara Convention Center in Santa Clara, CA, brings together Cloud Computing, APM, APIs, Microservices, Security, Big Data, Internet of Things, DevOps and WebRTC to one location. With cloud computing driving a higher percentage of enterprise IT budgets every year, it becomes increasingly important to plant your flag in this fast-expanding business opportunity. Submit your speaking proposal today!
So I guess we’ve officially entered a new era of lean and mean. I say this with the announcement of Ubuntu Snappy Core, “designed for lightweight cloud container hosts running Docker and for smart devices,” according to Canonical. “Snappy Ubuntu Core is the smallest Ubuntu available, designed for security and efficiency in devices or on the cloud.” This first version of Snappy Ubuntu Core features secure app containment and Docker 1.6 (1.5 in main release), is available on public clouds, and for ARM and x86 devices on several IoT boards. It’s a Trend! This announcement comes just as...
What exactly is a cognitive application? In her session at 16th Cloud Expo, Ashley Hathaway, Product Manager at IBM Watson, will look at the services being offered by the IBM Watson Developer Cloud and what that means for developers and Big Data. She'll explore how IBM Watson and its partnerships will continue to grow and help define what it means to be a cognitive service, as well as take a look at the offerings on Bluemix. She will also check out how Watson and the Alchemy API team up to offer disruptive APIs to developers.
The IoT Bootcamp is coming to Cloud Expo | @ThingsExpo on June 9-10 at the Javits Center in New York. Instructor. Registration is now available at http://iotbootcamp.sys-con.com/ Instructor Janakiram MSV previously taught the famously successful Multi-Cloud Bootcamp at Cloud Expo | @ThingsExpo in November in Santa Clara. Now he is expanding the focus to Janakiram is the founder and CTO of Get Cloud Ready Consulting, a niche Cloud Migration and Cloud Operations firm that recently got acquired by Aditi Technologies. He is a Microsoft Regional Director for Hyderabad, India, and one of the f...
In 2015, 4.9 billion connected "things" will be in use. By 2020, Gartner forecasts this amount to be 25 billion, a 410 percent increase in just five years. How will businesses handle this rapid growth of data? Hadoop will continue to improve its technology to meet business demands, by enabling businesses to access/analyze data in real time, when and where they need it. Cloudera's Chief Technologist, Eli Collins, will discuss how Big Data is keeping up with today's data demands and how in the future, data and analytics will be pervasive, embedded into every workflow, application and infra...
As Marc Andreessen says software is eating the world. Everything is rapidly moving toward being software-defined – from our phones and cars through our washing machines to the datacenter. However, there are larger challenges when implementing software defined on a larger scale - when building software defined infrastructure. In his session at 16th Cloud Expo, Boyan Ivanov, CEO of StorPool, will provide some practical insights on what, how and why when implementing "software-defined" in the datacenter.
SYS-CON Media announced today that @ThingsExpo Blog launched with 7,788 original stories. @ThingsExpo Blog offers top articles, news stories, and blog posts from the world's well-known experts and guarantees better exposure for its authors than any other publication. @ThingsExpo Blog can be bookmarked. The Internet of Things (IoT) is the most profound change in personal and enterprise IT since the creation of the Worldwide Web more than 20 years ago.
The world's leading Cloud event, Cloud Expo has launched Microservices Journal on the SYS-CON.com portal, featuring over 19,000 original articles, news stories, features, and blog entries. DevOps Journal is focused on this critical enterprise IT topic in the world of cloud computing. Microservices Journal offers top articles, news stories, and blog posts from the world's well-known experts and guarantees better exposure for its authors than any other publication. Follow new article posts on Twitter at @MicroservicesE
SYS-CON Events announced today that robomq.io will exhibit at SYS-CON's @ThingsExpo, which will take place on June 9-11, 2015, at the Javits Center in New York City, NY. robomq.io is an interoperable and composable platform that connects any device to any application. It helps systems integrators and the solution providers build new and innovative products and service for industries requiring monitoring or intelligence from devices and sensors.