Private equity, Mergers and Acquisitions, Venture capital

Tech Mergers and Acquisitions Decline in Q1 of 2017

Technology sector mergers and acquisitions dipped slightly in the first quarter of 2017 compared to the corresponding period last year, according to data from the Jordan Edmiston Group (JEGI).

There were 554 transactions across the media, information, marketing, software and tech-enabled services sectors totaling $31.8 billion, down from 601 deals worth $39.7 billion in Q1 of 2016. ChannelE2E, in stark contrast, noticed heavy M&A activity among VARs, MSPs and CSPs in Q1, though we won't share overall 2017 trends until we publish our next ChannelE2E 100 annual report in Q1 2018.

The JEGI analysis follows three straight years of tech M&A growth, with total transaction value of $226 billion in 2016, according to JEGI, an independent investment bank. Mergers and acquisitions totaled $164.8 billion in 2015 and $143.2 billion in 2014.

Despite the first-quarter dip, JEGI is optimistic about the remainder of 2017 for three reasons, according to Chief Marketing Officer Adam Gross: a pro-business presidential administration, the growing number of private equity firms, and strong debt markets.

Additionally, results for the first quarter of 2016 included two very large deals totaling more than $11 billion, which significantly boosted the value of deals in the quarter, Gross said.

Bright Spot: Private Equity Growth

One leading indicator of robust M&A activity is increasing number of private equity funds, which brings more potential buyers to the market, according to JEGI.

The 2017 Preqin Global Private Equity & Venture Capital Report identified a record number of private equity funds currently in the market: 1,829 funds seeking an aggregate $620 billion. These firms are sitting on nearly $1.5 trillion in global cash reserves – often called “dry powder.”

Brenon Daily
Brenon Daily

According to 451 Research, cash-rich private equity firms represent the only significant group that’s accelerating activity in an otherwise slowing tech M&A market. As of late March, private equity firms and their portfolio companies had already made 165 transactions in 2017, a 15 percent jump from the previous record in the first quarter of 2016, the analyst firm reported.

“In the history of the industry, there have never been more tech-focused buyout shops that have had access to more capital, collectively, than right now. New firms have popped up while existing shops have put even more money to work in the tech industry,” Brenon Daly, research director of financials for 451 research, wrote in a March 22 blog.

“Of course, merely having record amounts of money doesn't necessarily mean that firms will do more shopping,” Daly went on to say. “After all, that hasn't been seen among corporate acquirers, which stand as the main rivals to PE shops.”

Tech M&A Performance By Sector

The tech-enabled services sector led the quarter in deal value, with mergers and acquisitions totaling $10.2 billion. That was an 8 percent decline from the $11.1 billion in deals in the first quarter of 2016. However, the number of deals saw an uptick from 106 to 119.

Notable transactions in the first quarter of 2017 included:

The software sector took second place in terms of deal volume, totaling $7 billion in the first quarter – an increase of 6 percent from 2016. However, the number of deals declined 24 percent.

The B2B media and technology, consumer media and technology, and exhibitions and conferences sectors saw sharp increases in deal values. Significant value declines were reported in the databases and information services sector, as well as the mobile media and technology sector.