Wall Street Beat: Uncertainty dampens tech M&A, PwC says

Though cloud and software technology put pressure on companies to acquire IP, merger and acquisition activity may not increase this year

By , IDG News Service |  

Economic uncertainty tamped down the number and value of technology mergers and acquisitions in 2012 and this year may not look much different, according to PricewaterhouseCoopers (PwC).

Despite some big deals that closed in 2012 -- like Google's US$12.9 billion acquisition of Motorola Mobility and Cisco's $5.0 billion takeover of digital video technology company NDS Group -- M&A activity declined, according to a PwC report this week.

The uncertain economic climate curbed spending by both technology consumers and IT company acquirers, as overall IT spending growth ended up at an "anemic" 1.2 percent year-over-year increase for 2012, PwC said in its report, "PwC's US Technology M&A Insights."

Technology deal value for 2012 totalled $103.4 billion, a drop of 17 percent from 2011, according to PwC. The number of deals closed decreased 19 percent, as the year ended with 249 completed transactions, compared to 308 deals in 2011.

This year, the rush to cloud technology and the quickly evolving software market, in particular, will put competitive pressure on IT companies to make acquisitions, PwC said. In addition, tech companies are cash rich, so they have money to make acquisitions they feel are necessary. The top 25 U.S. tech companies had a total of $330 billion in cash by the end of 2012, PwC noted.

"The pressure of disruptive innovation has technology companies constantly seeking the next competitive differentiator, which requires investing in new talent, new technologies, R&D and M&A as a means to all three," wrote Rob Fisher, PwC's U.S. technology deals leader.

With hardware sales sagging, deals are likely to revolve around cloud-oriented and mobile technology, analytics and social-network-enabling software, PwC said.

Data from market researchers reinforces the idea that software will lead growth. Software, at $542 billion, will remain the largest category of global IT purchases in 2013, increasing 4.4 percent in dollar terms from 2012, according to Forrester Research. Computer hardware, at $416 billion, is the second-largest category, but will experience just 2.1 percent growth this year, Forrester said, after 1.2 percent growth in 2012.

On the whole, though, IT spending looks like it will be healthier this year. Global IT purchases will increase by 3.3 percent in 2013, in terms of U.S. dollars, to US$2.1 trillion, according to Forrester's 2013 forecast.

Nevertheless, economic uncertainty is not disappearing and will likely continue to make deals harder to value, placing at least one stumbling block in the way of M&A during the year.

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