Welcome!

IBM Cloud Authors: Elizabeth White, Liz McMillan, Sematext Blog, Pat Romanski, Kevin Jackson

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
With so much going on in this space you could be forgiven for thinking you were always working with yesterday’s technologies. So much change, so quickly. What do you do if you have to build a solution from the ground up that is expected to live in the field for at least 5-10 years? This is the challenge we faced when we looked to refresh our existing 10-year-old custom hardware stack to measure the fullness of trash cans and compactors.
The emerging Internet of Everything creates tremendous new opportunities for customer engagement and business model innovation. However, enterprises must overcome a number of critical challenges to bring these new solutions to market. In his session at @ThingsExpo, Michael Martin, CTO/CIO at nfrastructure, outlined these key challenges and recommended approaches for overcoming them to achieve speed and agility in the design, development and implementation of Internet of Everything solutions wi...
Cloud computing is being adopted in one form or another by 94% of enterprises today. Tens of billions of new devices are being connected to The Internet of Things. And Big Data is driving this bus. An exponential increase is expected in the amount of information being processed, managed, analyzed, and acted upon by enterprise IT. This amazing is not part of some distant future - it is happening today. One report shows a 650% increase in enterprise data by 2020. Other estimates are even higher....
Today we can collect lots and lots of performance data. We build beautiful dashboards and even have fancy query languages to access and transform the data. Still performance data is a secret language only a couple of people understand. The more business becomes digital the more stakeholders are interested in this data including how it relates to business. Some of these people have never used a monitoring tool before. They have a question on their mind like “How is my application doing” but no id...
The 19th International Cloud Expo has announced that its Call for Papers is open. Cloud Expo, to be held November 1-3, 2016, at the Santa Clara Convention Center in Santa Clara, CA, brings together Cloud Computing, Big Data, Internet of Things, DevOps, Digital Transformation, Microservices 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 opportuni...
Smart Cities are here to stay, but for their promise to be delivered, the data they produce must not be put in new siloes. In his session at @ThingsExpo, Mathias Herberts, Co-founder and CTO of Cityzen Data, will deep dive into best practices that will ensure a successful smart city journey.
SYS-CON Events announced today that 910Telecom will exhibit at the 19th International Cloud Expo, which will take place on November 1–3, 2016, at the Santa Clara Convention Center in Santa Clara, CA. Housed in the classic Denver Gas & Electric Building, 910 15th St., 910Telecom is a carrier-neutral telecom hotel located in the heart of Denver. Adjacent to CenturyLink, AT&T, and Denver Main, 910Telecom offers connectivity to all major carriers, Internet service providers, Internet backbones and ...
Pulzze Systems was happy to participate in such a premier event and thankful to be receiving the winning investment and global network support from G-Startup Worldwide. It is an exciting time for Pulzze to showcase the effectiveness of innovative technologies and enable them to make the world smarter and better. The reputable contest is held to identify promising startups around the globe that are assured to change the world through their innovative products and disruptive technologies. There w...
Internet of @ThingsExpo, taking place November 1-3, 2016, at the Santa Clara Convention Center in Santa Clara, CA, is co-located with 19th Cloud Expo and will feature technical sessions from a rock star conference faculty and the leading industry players in the world. 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. All major researchers estimate there will be tens of billions devices - comp...
DevOps at Cloud Expo, taking place Nov 1-3, 2016, at the Santa Clara Convention Center in Santa Clara, CA, is co-located with 19th Cloud Expo and will feature technical sessions from a rock star conference faculty and the leading industry players in the world. The widespread success of cloud computing is driving the DevOps revolution in enterprise IT. Now as never before, development teams must communicate and collaborate in a dynamic, 24/7/365 environment. There is no time to wait for long dev...
Data is the fuel that drives the machine learning algorithmic engines and ultimately provides the business value. In his session at Cloud Expo, Ed Featherston, a director and senior enterprise architect at Collaborative Consulting, will discuss the key considerations around quality, volume, timeliness, and pedigree that must be dealt with in order to properly fuel that engine.
There is growing need for data-driven applications and the need for digital platforms to build these apps. In his session at 19th Cloud Expo, Muddu Sudhakar, VP and GM of Security & IoT at Splunk, will cover different PaaS solutions and Big Data platforms that are available to build applications. In addition, AI and machine learning are creating new requirements that developers need in the building of next-gen apps. The next-generation digital platforms have some of the past platform needs a...
19th Cloud Expo, taking place November 1-3, 2016, at the Santa Clara Convention Center in Santa Clara, CA, will feature technical sessions from a rock star conference faculty and the leading industry players in the world. Cloud computing is now being embraced by a majority of enterprises of all sizes. Yesterday's debate about public vs. private has transformed into the reality of hybrid cloud: a recent survey shows that 74% of enterprises have a hybrid cloud strategy. Meanwhile, 94% of enterpri...
SYS-CON Events announced today Telecom Reseller has been named “Media Sponsor” of SYS-CON's 19th International Cloud Expo, which will take place on November 1–3, 2016, at the Santa Clara Convention Center in Santa Clara, CA. Telecom Reseller reports on Unified Communications, UCaaS, BPaaS for enterprise and SMBs. They report extensively on both customer premises based solutions such as IP-PBX as well as cloud based and hosted platforms.
Identity is in everything and customers are looking to their providers to ensure the security of their identities, transactions and data. With the increased reliance on cloud-based services, service providers must build security and trust into their offerings, adding value to customers and improving the user experience. Making identity, security and privacy easy for customers provides a unique advantage over the competition.
I wanted to gather all of my Internet of Things (IOT) blogs into a single blog (that I could later use with my University of San Francisco (USF) Big Data “MBA” course). However as I started to pull these blogs together, I realized that my IOT discussion lacked a vision; it lacked an end point towards which an organization could drive their IOT envisioning, proof of value, app dev, data engineering and data science efforts. And I think that the IOT end point is really quite simple…
Personalization has long been the holy grail of marketing. Simply stated, communicate the most relevant offer to the right person and you will increase sales. To achieve this, you must understand the individual. Consequently, digital marketers developed many ways to gather and leverage customer information to deliver targeted experiences. In his session at @ThingsExpo, Lou Casal, Founder and Principal Consultant at Practicala, discussed how the Internet of Things (IoT) has accelerated our abil...
Is the ongoing quest for agility in the data center forcing you to evaluate how to be a part of infrastructure automation efforts? As organizations evolve toward bimodal IT operations, they are embracing new service delivery models and leveraging virtualization to increase infrastructure agility. Therefore, the network must evolve in parallel to become equally agile. Read this essential piece of Gartner research for recommendations on achieving greater agility.
SYS-CON Events announced today that Venafi, the Immune System for the Internet™ and the leading provider of Next Generation Trust Protection, will exhibit at @DevOpsSummit at 19th International Cloud Expo, which will take place on November 1–3, 2016, at the Santa Clara Convention Center in Santa Clara, CA. Venafi is the Immune System for the Internet™ that protects the foundation of all cybersecurity – cryptographic keys and digital certificates – so they can’t be misused by bad guys in attacks...
For basic one-to-one voice or video calling solutions, WebRTC has proven to be a very powerful technology. Although WebRTC’s core functionality is to provide secure, real-time p2p media streaming, leveraging native platform features and server-side components brings up new communication capabilities for web and native mobile applications, allowing for advanced multi-user use cases such as video broadcasting, conferencing, and media recording.