Welcome!

IBM Cloud Authors: Yeshim Deniz, Liz McMillan, Elizabeth White, John Esposito, Pat Romanski

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
In his keynote at 18th Cloud Expo, Andrew Keys, Co-Founder of ConsenSys Enterprise, will provide an overview of the evolution of the Internet and the Database and the future of their combination – the Blockchain. Andrew Keys is Co-Founder of ConsenSys Enterprise. He comes to ConsenSys Enterprise with capital markets, technology and entrepreneurial experience. Previously, he worked for UBS investment bank in equities analysis. Later, he was responsible for the creation and distribution of life ...
SYS-CON Events announced today that IBM Cloud Data Services has been named “Bronze Sponsor” of SYS-CON's 18th Cloud Expo, which will take place on June 7-9, 2016, at the Javits Center in New York City, NY. IBM Cloud Data Services offers a portfolio of integrated, best-of-breed cloud data services for developers focused on mobile computing and analytics use cases.
SYS-CON Events announced today that Super Micro Computer, Inc., a global leader in Embedded and IoT solutions, will exhibit at SYS-CON's 18th International Cloud Expo®, which will take place on June 7-9, 2016, at the Javits Center in New York City, NY. Supermicro (NASDAQ: SMCI), the leading innovator in high-performance, high-efficiency server technology, is a premier provider of advanced server Building Block Solutions® for Data Center, Cloud Computing, Enterprise IT, Hadoop/Big Data, HPC and ...
Cloud computing delivers on-demand resources that provide businesses with flexibility and cost-savings. The challenge in moving workloads to the cloud has been the cost and complexity of ensuring the initial and ongoing security and regulatory (PCI, HIPAA, FFIEC) compliance across private and public clouds. Manual security compliance is slow, prone to human error, and represents over 50% of the cost of managing cloud applications. Determining how to automate cloud security compliance is critical...
18th Cloud Expo, taking place June 7-9, 2016, at the Javits Center in New York City, NY, 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 enterprises are using some...
SYS-CON Events announced today that MobiDev will exhibit at SYS-CON's 18th International Cloud Expo®, which will take place on June 7-9, 2016, at the Javits Center in New York City, NY. MobiDev is a software company that develops and delivers turn-key mobile apps, websites, web services, and complex software systems for startups and enterprises. Since 2009 it has grown from a small group of passionate engineers and business managers to a full-scale mobile software company with over 200 develope...
SoftLayer operates a global cloud infrastructure platform built for Internet scale. With a global footprint of data centers and network points of presence, SoftLayer provides infrastructure as a service to leading-edge customers ranging from Web startups to global enterprises. SoftLayer's modular architecture, full-featured API, and sophisticated automation provide unparalleled performance and control. Its flexible unified platform seamlessly spans physical and virtual devices linked via a world...
SYS-CON Events announced today that BMC Software has been named "Siver Sponsor" of SYS-CON's 18th Cloud Expo, which will take place on June 7-9, 2015 at the Javits Center in New York, New York. BMC is a global leader in innovative software solutions that help businesses transform into digital enterprises for the ultimate competitive advantage. BMC Digital Enterprise Management is a set of innovative IT solutions designed to make digital business fast, seamless, and optimized from mainframe to mo...
"What we see what happens when you have a completely networked society and the potential to now drive the value creation and the collaboration and the ecosystems that are possible when you start to be able to connect people and industries together in ways that have never been possible before," explained Esmeralda Swartz, VP of Marketing Enterprise & Cloud at Ericsson, in this SYS-CON.tv interview at @ThingsExpo, held November 3-5, 2015, at the Santa Clara Convention Center in Santa Clara, CA.
Companies can harness IoT and predictive analytics to sustain business continuity; predict and manage site performance during emergencies; minimize expensive reactive maintenance; and forecast equipment and maintenance budgets and expenditures. Providing cost-effective, uninterrupted service is challenging, particularly for organizations with geographically dispersed operations.
The Internet of Things (IoT) is growing rapidly by extending current technologies, products and networks. By 2020, Cisco estimates there will be 50 billion connected devices. Gartner has forecast revenues of over $300 billion, just to IoT suppliers. Now is the time to figure out how you’ll make money – not just create innovative products. With hundreds of new products and companies jumping into the IoT fray every month, there’s no shortage of innovation. Despite this, McKinsey/VisionMobile data...
The IoTs will challenge the status quo of how IT and development organizations operate. Or will it? Certainly the fog layer of IoT requires special insights about data ontology, security and transactional integrity. But the developmental challenges are the same: People, Process and Platform. In his session at @ThingsExpo, Craig Sproule, CEO of Metavine, will demonstrate how to move beyond today's coding paradigm and share the must-have mindsets for removing complexity from the development proc...
SYS-CON Events announced today TechTarget has been named “Media Sponsor” of SYS-CON's 18th International Cloud Expo, which will take place on June 7–9, 2016, at the Javits Center in New York City, NY, and the 19th International Cloud Expo, which will take place on November 1–3, 2016, at the Santa Clara Convention Center in Santa Clara, CA. TechTarget is the Web’s leading destination for serious technology buyers researching and making enterprise technology decisions. Its extensive global networ...
SYS-CON Events announced today that MangoApps will exhibit at SYS-CON's 18th International Cloud Expo®, which will take place on June 7-9, 2016, at the Javits Center in New York City, NY. MangoApps provides modern company intranets and team collaboration software, allowing workers to stay connected and productive from anywhere in the world and from any device. For more information, please visit https://www.mangoapps.com/.
SYS-CON Events announced today that Commvault, a global leader in enterprise data protection and information management, has been named “Bronze Sponsor” of SYS-CON's 18th International Cloud Expo, which will take place on June 7–9, 2016, at the Javits Center in New York City, NY, and the 19th International Cloud Expo, which will take place on November 1–3, 2016, at the Santa Clara Convention Center in Santa Clara, CA. Commvault is a leading provider of data protection and information management...
The essence of data analysis involves setting up data pipelines that consist of several operations that are chained together – starting from data collection, data quality checks, data integration, data analysis and data visualization (including the setting up of interaction paths in that visualization). In our opinion, the challenges stem from the technology diversity at each stage of the data pipeline as well as the lack of process around the analysis.
SYS-CON Events announced today that Alert Logic, Inc., the leading provider of Security-as-a-Service solutions for the cloud, will exhibit at SYS-CON's 18th International Cloud Expo®, which will take place on June 7-9, 2016, at the Javits Center in New York City, NY. Alert Logic, Inc., provides Security-as-a-Service for on-premises, cloud, and hybrid infrastructures, delivering deep security insight and continuous protection for customers at a lower cost than traditional security solutions. Ful...
A strange thing is happening along the way to the Internet of Things, namely far too many devices to work with and manage. It has become clear that we'll need much higher efficiency user experiences that can allow us to more easily and scalably work with the thousands of devices that will soon be in each of our lives. Enter the conversational interface revolution, combining bots we can literally talk with, gesture to, and even direct with our thoughts, with embedded artificial intelligence, wh...
In his session at 18th Cloud Expo, Bruce Swann, Senior Product Marketing Manager at Adobe, will discuss how the Adobe Marketing Cloud can help marketers embrace opportunities for personalized, relevant and real-time customer engagement across offline (direct mail, point of sale, call center) and digital (email, website, SMS, mobile apps, social networks, connected objects). Bruce Swann has more than 15 years of experience working with digital marketing disciplines like web analytics, social med...
Designing IoT applications is complex, but deploying them in a scalable fashion is even more complex. A scalable, API first IaaS cloud is a good start, but in order to understand the various components specific to deploying IoT applications, one needs to understand the architecture of these applications and figure out how to scale these components independently. In his session at @ThingsExpo, Nara Rajagopalan is CEO of Accelerite, will discuss the fundamental architecture of IoT applications, ...