Q4 2016 Information Technology Industry Spotlight
INSIGHT ARTICLE |
Broader market conditions continue to encourage mergers and acquisitions (M&A) activity. Lending remains relatively inexpensive; cash reserves or equivalents are still amply stocked, and stock prices remain quite high, so financial means are readily available.
Megadeals, primarily the Dell-EMC merger, resulted in a blockbuster third quarter for information technology (IT) M&A deal value. The motivations for deals like this are varied, but the patterns in which they fall remain the same: Either the interested parties are looking to consolidate in order to shore up core businesses by also taking over complementary product lines and expanding vendor networks, or they are divesting divisions that have been floundering for some time.
Accordingly, looking ahead, more M&A will concentrate within strongly interrelated subsectors.
Key highlights from the third quarter:
- IT M&A deal value hit $99.3 billion in the third quarter of 2016, outpacing the two prior highest tallies of the past four years. Especially in light of the downturn in completed transaction counts, it’s clear that the massive sum was driven by megadeals, primarily the Dell-EMC merger, which topped out at $60 billion. Backing that one deal out reduces quarterly deal value to $39.3 billion, closer to the historical mean.
- The median IT transaction size hit $135 million in the most recent complete quarter, far and away the largest tally since the start of 2013.
- Private equity firms are still looking for investment opportunities wherever they can, and currently, technology presents one of the riper fields of opportunity.
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Stagnancy is in the forecast for business products and services as the industry moves forward with caution amidst tepid domestic growth.
Sentiment in consumer products remains guarded, while a focus on quality and clear rationales for acquisitions continues to be paramount.
Challenges in the health care industry and trends across the private equity landscape are resulting in decreased M&A activity.