Tech M&A Frenzy Seen Accelerating in 2016
Two thousand and fifteen was a banner year for technology mergers and acquisitions, and market watchers predict that trend will accelerate in 2016 as buyers look beyond consolidation to expansion as technologies converge.
Driving the M&A frenzy is technology giants like Google (NASDAQ: GOOG) and Apple (NASDAQ: AAPL) sitting on large piles of cash along with a steady stream of innovative startups. This is especially true in the enterprise IT segment, where ecosystems are flourishing in areas like DevOps and application containers. Meanwhile, companies like IBM (NYSE: IBM) that are shifting to from hardware and software to cloud and other services are busy snapping up startups as they seek to fill gaps in their technology portfolios.
Moreover, the sheer number of technology startups toiling in areas such as IT automation and data security simply isn't sustainable. This bounty has been driven in large part by a flourishing open source movement that is steadily being embraced by tech companies large and small. (The danger here, of course, is that big players will try to throw their weight around to coopt open source initiatives, thereby stifling innovation.)
Hence, established companies with large war chests will likely find it easier to remain agile by acquiring new enterprise IT capabilities rather than developing them in-house. That's the view of several market watchers who predict M&A activity will continue to soar on the heels of a record-breaking 2015.
"Numerous factors indicate that the high level of activity in 2015 will carry over into 2016," noted a recent survey by deal advisor KPMG. "As U.S. companies continue their quest for growth, they continue to be faced with a buy versus build strategy. Many companies are choosing to include M&A as in integral part of their strategy."
Another M&A tracker, MergerMarket, reckons that global telecommunications, media and technology activity reached an all-time high in 2015 with more than 3,000 transactions valued at more than $768 billion. Among the biggest enterprise IT deals was Dell's planned $67 billion acquisition of storage giant EMC Corp. (NYSE: EMC) and its stake in VMware.
The 2015 M&A totals for the enterprise sector are somewhat skewed by the breakup of Hewlett Packard into two companies, including Hewlett Packard Enterprise (NYSE: HPE). The split was completed in October. However, other blockbuster deals last year illustrate how the enterprise market is responding to the "hyper-convergence" of computing, storage and networking technologies.
Case in point was Avago Technologies (NASDAQ: AVGO) May 2015 acquisition of communications chipmaker Broadcom Corp. in a cash and stock deal valued at $37 billion.
Among the sought-after technologies this year is machine learning, M&A trackers said. "Acquiring machine-learning companies that can better personalize user experiences across both its desktop and mobile offerings will be central to Facebook’s (NASDAQ: FB) M&A strategy in 2016," MergerMarket predicted.
Meanwhile, a KPMG survey of industry executives released earlier this month concludes that "converging technologies" will be a key driver M&A activity in a category its broadly defines as telecommunications and media. Among the most sought after capabilities are data analytics, cloud infrastructure, Internet of Things and security, the deal broker found.
"Bolstered by large cash holdings and the prospect of a faster momentum for deal making, companies surveyed are shifting their M&A strategies from consolidation in 2015 to expansion in 2016," KPMG concluded.
Another case in point is the global semiconductor industry, which topped $100 billion in M&A activity in 2015. That trend is continuing, with microcontroller specialist Microchip Technology Inc. (NASDAQ: MCHP) reportedly on the verge of acquiring embedded chipmaker Atmel Corp. (NASDAQ: ATML). Microchip made an unsolicited offer in December to acquire Atmel for about $3.8 billion.
J. Eric Bjornholt, Microchip's chief financial officer, told KPMG the chipmaker "is not doing acquisitions to ward off competition." Rather, its deals are intended to boost growth while improving its competitive position.