Digital transformation spurs value records · 2016-11-17 · 02 Highlights 03 Digital transformation spurs value records 11 Look ahead 12 Regional snapshots 23 Methodology 23 Source

Digital transformation spurs value records

Global technology M&A report

Issue 33July–September 2016 final look

02Highlights

03Digital transformationspurs value records

11Look ahead

12Regional snapshots

23Methodology

23Source notes

18Additional charts

HighlightsTech and non-tech companies being disrupted by innovative digital technologiesturned to M&A in numbers that made 3Q16another blockbuster quarter for global technology M&A value. Meanwhile, privateequity (PE) buyers set new quarterly volume and value records of their own. Divestiture value soared, and two moremegadeals (i.e., above $10 billion) brought the 2016 total to three.

• Third-quarter aggregate value of $155.5* billion rose 22% from 2Q16 and 138% year-over-year (YOY). Thus, 3Q16 replaced 2Q16 as the third-highest tech M&A quarter everby value.

• Quarterly volume fell to 911 deals, down 12% sequentially and 15% YOY. Given the 3Q16decline, year-to-date (YTD) 2016 volume fell behind 2015 for the first time.

• Ten divestiture deals above $1 billion, semiconductor consolidation and deals targeting security, Internet of Things (IoT), smart mobility, and advertising and marketing drove3Q16 deal value.

• Cross-border (CB) aggregate deal value soared to $80.8 billion, eclipsing the prior all-time record by 85%. YTD 2016 already sets a new full-year CB value record. n

Note: average deal value is based on the value of disclosed-value deals, while number of deals includes both disclosed-value and undisclosed-value deals. Bubble size is based on each deal-driving trend’s share of total quarterly value.

Source: EY analysis of The 451 Group Research M&A KnowledgeBase, accessed 4 October 2016.


*All values in this report are of disclosed-value deals only, and all dollar references are in US dollarsunless otherwise indicated.

Figure 1: A directional view of select deal-driving trends, 3Q16Deal drivers

Non-tech-buyer value more than tripled YOY in 3Q16 to $55.2 billion — higher thanfull-year 2015. Nine of 10 deal drivers in Figure 1 rose in total value YOY; only paymentand financial technologies fell.

• IoT topped the chart in average value perdeal thanks to a $32.4 billion megadealand three more above $1 billion.

• Five deals above $1 billion drove securityto a sevenfold YOY value increase. Dealstargeting smart mobility, and advertisingand marketing technologies quadrupledYOY in disclosed value.

• In volume, only IoT, gaming and connected cars rose YOY in 3Q16; the remaining seven trends are down. n

Ave

rage

dea

l val

ue (

$m

)

Number of deals

50 100 150 200 250 300 350 400

Health care IT

Cloud/SaaS

Smart mobility

IoT

Gaming

Big data

Advertising and marketing technologies

Security

Connected cars

$3,500

$3,000

$2,500

$2,000

$1,500

$1,000

$500

$0

Payment and financial technologies

3Q15 | $65.4b

3Q16 | $155.5b

83%9%6%

64%16%14%

2%

6%

<$100m $100m—$500m $500m—$1b >$1b

Figure 2: Aggregate value of announced deals by deal size, 3Q16 vs. 3Q15Deal size A YOY shift to higher-value deals continuedin 3Q16, as average value per deal set arecord ($789 million).

• Thirty-two 3Q16 deals at or above $1 billion also set a new record (for the second consecutive quarter). At $129.7 billion, their total value more than tripled over 3Q15.

• The value of midsize deals ($100 million to $1 billion) rose YOY but fell as a percentage of 3Q16 aggregate value to 15% from 31% in 3Q15.

• The volume and value of disclosed-valuedeals below $100 million fell YOY, by 38%and 20%, respectively. n

2 | Global technology M&A report: July–September 2016

02Highlights


11Look ahead


23Methodology

23Source notes

18Additional charts

Global technologyM&A update


1,069

2Q16 3Q163Q15

PE Corporate

988

811,039

944

95 911

811

100

$640m

$273m

$232m

$503m

$65,422m $127,220m $155,494m

2Q16 3Q163Q15

PE Corporate

Average value(corporate and PE)

Corporate average value

PE average value

$988m

$558m $720m

$1,163m

$789m

Figure 3: Total and average deal values for deals with disclosed values3Q15–3Q16

Figure 4: Total number of all announced deals 3Q15–3Q16

Global technology M&A report: July–September 2016 | 3

“Surging private equity and non-tech buying of technologytargets, combined with growingdivestiture value, illustrateshow technology companies areworking to focus corporatestrategy — and their portfolios —to keep pace with increasingdigital transformation.”

Jeff Liu

EY Global Technology Industry LeaderTransaction Advisory Services

Digital transformation spurs value records Digital transformation drove tech and non-tech companies alike to acquire strategictechnologies and divest non-strategic assets in the third quarter. Abundant deals ofboth types helped propel 3Q16 to blockbuster values for global technology M&A,even as volume sagged. Tighter venture capital markets and an all-but-closed IPOwindow also contributed, as did companies seeking global growth. PE and non-techbuyers established new all-time quarterly value records, CB deal value soared 85%higher than the prior quarterly record.

Diverse technology and business drivers prompt second consecutive quarterlyrecord for most-ever big-ticket dealsThe major technology dealmaking themes we’ve written about before — stack tosolution, in the crosshairs, hidden gems and multifaceted cybersecurity — werepresent again in abundance in 3Q16, as were cross-industry blur, semiconductorconsolidation and an ongoing shift to higher-value deals. Together, they produced arecord 32 deals of $1 billion or more, 4 more than the record set only last quarter.

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18Additional charts

Among the many factors shaping 3Q16 tech M&A:

• Whether induced by cloud computing, smart mobility, IoT or big data analytics, tech and non-tech companies continued pursuing transformational deals — often to build broader end-to-end solutions in response to customer demand (the theme we call stack to solution).

• Hidden gems. Ten divestitures rose above $1 billion, as tech companies also pursued transformation by sharpening their core focus.

• The value of cybersecurity targets leaped to a sevenfold YOY increase in aggregate deal value; deals targeting IoT tripled, and advertising and marketing quadrupled.


Disclosedvalue ($m) Deal type

Multiple of EV/TTM revenue

Multiple ofEV/TTMEBITDA

Premium offeredAnnounced

SoftBank Group Corporation

Analog Devices, Inc.

Oracle Corporation

Micro Focus International plc

Verizon Communications, Inc.

Giant Investment and consortium of investors

Apollo Global Management LLC

Platinum Equity LLC

ONEX Corporation/Baring Private Equity Asia

Wal-Mart Stores, Inc.

ARM Holdings plc

Linear Technology Corporation

NetSuite, Inc.

Software Business division of Hewlett-Packard Enterprise

Operating business of Yahoo! Inc.

Playtika Ltd. Rackspace Hosting, Inc.

Network Power business from Emerson Electric Company

Intellectual Property and Science business unit of Thomson Reuters Corporation

Jet.com, Inc.

$32,434 18 Jul Corporate 20.9x 46.2x 61%

$14,880 26 Jul Corporate 9.4x 19.6x 32%

$9,300 28 Jul Corporate 10.6x N/A 58%

$8,800 7 Sep Corporate 2.9x 13.3x N/A

$4,830 25 Jul Corporate N/A N/A N/A

$4,400 30 Jul PE N/A N/A N/A

$4,343 26 Aug PE 2.1x 6.4x 37%

$4,000 2 Aug PE 0.9x N/A N/A

$3,550 11 Jul PE N/A 11.3x N/A

$3,300 8 Aug Corporate N/A N/A N/A

Buyer Target

Figure 5: Global top 10 deals, 3Q16This quarter, there were a total of 32 deals ≥$1b; the remainder of these deals are listed on page 22.


Up3Q16

32 dealsat or above $1 billion with an aggregate value of $129.7 billion —their value more than triples over 3Q15

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• Deals targeting technologies that contribute to the reinvention and rapid evolution of digital customer experiences were prevalent, from customer support technologies to warehouse automation that helps satisfy customers’ growing demand for faster delivery.

• Growth-seeking geographic expansion sparked a peak in CB dealmaking targeting US companies and record- breaking overseas M&A overall (“Cross-border value flow,” page 18). What’s more, results of EY’s October 2016 Capital Confidence Barometer survey suggest the trend will continue: 70% of responding tech executives say they’re likely to pursue CB deals in the next year.1

• Artificial intelligence (AI) deals were notable as a strategic technology target of many incumbent technology companies.

Figure 6: Global technology transaction scorecard (corporate and PE), 3Q16

Deals announced 3Q15 Sequential % change 3Q16

988 811 –14% ▼ –18% ▼

216 166 –18% ▼ –23% ▼

$50,052 $119,439 18% ▲ 139% ▲

$232 $720 43% ▲ 210% ▲

81 100 5% ▲ 23% ▲

24 31 19% ▲ 29% ▲

$15,370 $36,055 40% ▲ 135% ▲

$640 $1,163 18% ▲ 82% ▲

Corporate and PE

Number of deals announced

Number of deals with disclosed values

Total value of deals with disclosed values ($m)

Average value of deals with disclosed values ($m)

1,069 911 –12% ▼ –15% ▼

240 197 –14% ▼ –18% ▼

$65,422 $155,494 22% ▲ 138% ▲

$273 $789 41% ▲ 189% ▲

PE





Corporate





YOY % change



Aggregate value increases22% sequentially and 138% YOY — making 3Q16 the third-highest tech M&A quarter ever by value

$155.5b3Q16

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Third quarter by the numbersBusiness model transformation, consolidation and global growth-seeking drove corporate tech buyers to nearly double theiraggregate disclosed deal value YOY — yet PE and non-tech buyersboth increased by higher percentages. Of the record 32 deals at $1 billion or more, corporate tech buyers had 13; PE, 12; and non-tech, 7.

• Aggregate value of $155.5 billion pushed 2Q16’s $127.2 billion to fourth place among global technology’s highest-ever quarters (see Figure 6, page 5). Only 4Q15 ($189.8 billion) and 1Q00 ($228.4 billion) posted higher values. At $349.4 billion, YTD aggregate value is 30% higher than YTD 2015’s all-time record pace.

• Breaking out the corporate buyer deal values in Figure 6 between tech and non-tech, we see that corporate tech buyers rose 92% YOY to $64.3 billion from $33.5 billion in 3Q15. Non-tech buyers’ aggregate value more than tripled (+233%) to $55.2 billion from $16.6 billion in 3Q15. Non-tech’s 3Q16 total was a second consecutive quarterly record and higher than their 2015 full-year total of $53.6 billion.

• At $93.2 billion YTD, non-tech buyers are 74% ahead of full-year 2015 and have a 27% share of 2016 aggregate global technology M&A value.

• A shift toward higher-value deals that we’ve seen all year continued, with average value per disclosed-value deal reaching its highest-ever level: $789 million. The value of midsize deals ($100 million to $1 billion) increased 14% YOY but fell as a percentage of 3Q16 aggregate value to 15% from 31% in 3Q15. Meanwhile, volume and value of disclosed-value deals below $100 million fell YOY, by 38% and 20%, respectively.

Figure 7: Global technology transactions value flow by sector, 3Q16 vs. 2Q16

2Q16

CE = Communications equipment; CPE = Computers, peripherals and electronics

Note: percentages may not total to 100% due to rounding.


3Q16

Buyer $155.5b

Target $155.5b

CPE13%

CPE5%

CE 2%

Semiconductors35%

IT services8%

Internet13%

Software/SaaS30%

Semiconductors14%

PE23%

Non-tech35%

Software/SaaS17%

Internet 2%IT services 3%

CE1%

Buyer $127.2b

Target $127.2b

CPE12%

CE 4%

Semiconductors15%

IT services10%

Internet28%

Software/SaaS31%

IT services8%

Semiconductors9%

PE20%

Non-tech17%

Software/SaaS38%

CPE 2%CE 3%

Non-tech 1%

Internet4%


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• At 911 deals, volume fell 12% sequentially and 15% YOY. It’s the lowest level we’ve seen in more than two years (since 872 deals in 2Q14). And it’s out of sync with the correlation we’ve observed dating back to 1996 between tech M&A volume and the NASDAQ Composite Index, which rose 10% during 3Q16.

• Low 3Q16 volume caused YTD 2016 to fall from 2% ahead (at the end of 2Q16) to 4% behind 2015’s post-dotcom-record pace (only the year 2000 was higher). YTD 2016 volume was 2,952, versus 3,064 deals in YTD 2015.

• Corporate tech buyers caused the volume decline, falling 19% YOY (161 deals) to 676 deals. Though non-tech-buyer volume fell 16 deals YOY to 135, their YTD total of 441 deals remains 13% ahead of YTD 2015. PE volume (and value) set records, as discussed on page 10.

IoT, semiconductor consolidation drive two megadealsThe third quarter’s two megadeals both involved semiconductorcompanies but were driven by very different trends.

• SoftBank Group’s $32.4 billion deal for ARM is only the latest big-ticket deal made in anticipation of the enormous potential of IoT technologies to disrupt and transform businesses and the economy. ARM, best known for the microprocessors that power most smartphones (see Asia-Pacific and Japan (APJ) snapshot, page 14), has been diversifying into IoT (including security) through multiple acquisitions. Though many may recall SoftBank as an internet technology company, today it is a multinational mobile telecommunications holding company and therefore a non-tech buyer.

Source: EY analysis of Capital IQ data, accessed 28 October 2016.

Top 10

Next 15

3Q14 4Q14 1Q15

2%

3%

–1%

$830

$267

$563

$844$872

$264

$5804%

3%

2%

4%

6%

10%$270

$602

2Q15 3Q15 4Q15

$923

$297

$626 4%

3%

2%

$953

$303

$650 4%

3%

2%

$981

$308

$673

1Q16 2Q16 3Q16

4%

4%

3%

$1,020$1,055

$318

$7022%

3%

7% $340

$715

$1,127

9%

7%

3% $350

$777

Figure 8: Aggregate cash and short- and long-term investments for the top 25 technology companies, 3Q14–3Q16 ($b)


Fewer companies divested potential hidden gems in 3Q16 but disclosed valuemore than doubled to $39.4 billion.

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• In all, four deals above $1 billion drove IoT deal values to $40.3 billion in 3Q16 (+175% YOY). YTD IoT-targeted dealmaking volume of 153 deals is up 34% over 2015, and YTD value of $51.6 billion is 62% higher. That 2016 growth follows IoT’s “breakout” 2015, in which volume and disclosed value soared 204% and 163%, respectively, over 2014. IoT and connected-car targets continued to overlap in 3Q16.

• The second 3Q16 megadeal was a $14.9 billion semiconductor consolidation deal between two US analog chip specialists, Analog Devices and Linear Technology (see Americas snapshot, page 12).

• Semiconductor targets had more disclosed value than any other technology segment in 3Q16, posting $54 billion (35% of quarterly aggregate value). Software/SaaS is almost always the top target by volume and value, but in 3Q16 its $46.1 billion (30%) was second. Semiconductor dealmaking is in its second year of very high-value deals driven by consolidation and IoT, totaling $80.9 billion YTD in disclosed value — actually down 2% from YTD 2015.

Incumbent tech’s big-ticket deals reflect ongoing transformationDisruptive technologies such as cloud computing, smart mobilityand big data analytics continue to drive business transformation in3Q16. And that caused large incumbent tech companies to pursuebig-ticket acquisitions and divestments as they pivot to embracenew business models and customer experiences.

• To accelerate its transition to cloud computing, Oracle made a $9.3 billion offer for NetSuite, which also counts Larry Ellison among its founders. For Oracle, independent directors excluding Ellison evaluated and negotiated the deal; likewise, for NetSuite, the deal must be approved by a majority of shares not owned by Ellison or his family.2

• Hewlett-Packard Enterprise (HPE) announced its second multibillion dollar spin-merger in as many quarters. After announcing the $6 billion spin of its IT services unit into a 50-50 joint venture with Computer Sciences Corporation last quarter, HPE said in 3Q16 that UK-based Micro Focus would acquire its business software division in an $8.8 billion deal (see Europe, Middle East and Africa (EMEA) snapshot, page 16). The pending deal is a classic example of our “hidden gems” theme.3 While HPE viewed the software division as non-core, Micro Focus — which launched 40 years ago with a popular version of COBOL — today orients its business around helping enterprises extend the useful life of older systems, including integration with more recent technologies.4

• In another divestment, HP Inc. was on the buying end of Samsung Electronics’ $1.1 billion printer business. The deal brings HP into larger-format A3 printing and manufacturing its own “print engines.”5

• The $2 billion deal for US-based smart television manufacturer Vizio by China’s LeEco represents only one aspect of that company’s planned multidimensional transformations. Originally an online streaming video business, LeEco more recently added video content creation, then smartphones and, through the Vizio deal, smart TVs.6 Thus it creates content and provides content distribution — and even the hardware on which to consume content. The company ultimately plans seven product and service ecosystems, including electric vehicles, cloud services and online finance.7


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Non-tech company transformations also drive big-ticket dealsNon-tech buyers’ record 3Q16 value came in large part as a result of seven deals at or above $1 billion, including the SoftBank Group–ARM megadeal.

• Like SoftBank, Verizon is a telecommunications network operator using M&A to branch into IoT, including a broad approach and a connected-car focus (see Americas snapshot, page 12). In its broader approach, Verizon announced a non-disclosed-value deal for Sensity Systems, whose sensors embed in LED lighting structures. Verizon envisions “large-scale implementations that will drive the digital transformation of cities, universities and venues.”8 Verizon has been simultaneously pursuing a second disruptive technology transformation, diversifying into online advertising technology and revenue streams; in 3Q16, it announced a deal to acquire Yahoo!, as it did AOL last year (see Figure 5, page 4).

• Walmart’s $3.3 billion deal for Jet.com aims to accelerate the brick-and-mortar retailer’s transformation into offering a “seamless” digital-and-physical shopping experience by injecting “a jolt of entrepreneurial spirit” into the company.9 The deal has been described as an example of how tighter capital markets and a challenging IPO environment have led some start-ups to “cash out” before an IPO.10

• Of the 135 deals in 3Q16 with non-tech buyers, almost 30 targeted advertising and marketing technologies, more than any other technology besides cloud computing (which along with smart mobility continues to be a kind of “background radiation” for global technology dealmaking). More than 20 non-tech-buyer deals targeted big data analytics, nearly 15 targeted payments and financial services technology and more than 10 targeted health care information technology (HIT).

Digital customer experience may be a rising M&A driverDigital transformations sweeping through all industries are changing — and raising — customer expectations across the board,from product delivery times to the quality of customer support interactions.11 We’ve begun to see big-ticket deals addressing this change.

• For the second consecutive quarter, deals targeting warehouse automation technology rose above $1 billion in disclosed value. The technology, which aims to get products into customer hands faster, while raising efficiency and lowering costs (especially for online e-commerce marketplaces), was targeted in about a half dozen 3Q16 deals. Most had no disclosed value, but the largest was Honeywell’s $1.5 billion deal for Intelligrated. Two big-ticket second-quarter deals totaled $6.8 billion.

• Teleperformance, a French provider of outsourced customer support services, announced a $1.5 billion deal for US-based LanguageLine Solutions, whose technology can pair customer- support people with one of thousands of interpreters via video link, in real time, to translate conversations in up to 240 different languages.12

• Genesys Telecommunications, which aims to expand beyond call centers into broader customer experience applications,13

announced a $1.4 billion deal for Interactive Intelligence, which provides unified communications and call center SaaS.

Non-tech-buyer disclosed value more than tripled YOY to $55.2 billion.


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PE buyers set new records for tech volume and valueAs EY’s In the crosshairs report15 describes, when incumbent techcompanies find themselves overshadowed in public markets by hotnew disruptive digital technologies and new business models, PEfirms can help them to reinvent. Lately, the PE firms have becomequicker to buy when such opportunities arise.

• In 3Q16, PE tech dealmakers drove a second consecutive record high for aggregate quarterly disclosed value: $36.1 billion. It was 40% above 2Q16’s prior record. Likewise, PE volume set a new quarterly record of 100 deals, 1 more than 99 deals in 3Q10.

• PE’s aggregate 3Q16 value came largely from buyers in the US (54%), China (19%) and Canada (12%). They bought mostly software/SaaS (36%) and internet (26%) targets.

• Twelve PE deals topped $1 billion, with three at $4 billion or above. The largest was a $4.4 billion deal by a Chinese PE group for mobile gaming company Playtika (see APJ snapshot, page 14). The next two largest PE deals were the privatization of cloud services provider Rackspace ($4.3 billion) and the divestment of Emerson Electric’s Emerson Network Power ($4 billion), which provides data center power management technology.

Incumbent tech’s hidden gems drive rising divestiture valueTech companies of all sizes continued to sharpen their core focus in 3Q16, but it was divestitures by large incumbents that causeddisclosed value to more than double over the two preceding quarters. 3Q16 divestiture value rose to $39.4 billion from $16.7 billion in both 1Q16 and 2Q16.

• Ten divestitures exceeded $1 billion, including many mentioned previously in this report: Micro Focus–HPE’s software unit; Verizon–Yahoo! (technically a divestiture because a publicly traded investment company will remain after the deal closes16); the PE deals for Emerson Network Power, Safran’s identity and security businesses, Intel Security and Playtika; and HP–Samsung Electronics’ printer business.

• Other big-ticket divestitures included a PE deal for Thomson Reuters’ online scientific and pharmaceutical database ($3.6 billion), Avnet’s IT services business unit (acquired by Tech Data for $2.6 billion) and the enterprise content business of the former EMC Corporation, now a part of Dell Technologies (acquired by OpenText for $1.6 billion).

• Divestiture volume was about 130 deals, down from approximately 175 in 2Q16 and from about 150 in 3Q15. n


Security, advertising and marketing deal values soarAmid a continuous flow of cyber breach headlines and increasinglydiverse competition for advertising and marketing revenue streams, 3Q16 disclosed value targeting related technologies rose significantly.

• Five big-ticket deals led security value to $16.9 billion in 3Q16, more than seven times higher than 3Q15. In fact, it’s higher than YTD 2015 ($16.2 billion), and YTD 2016 security value of $32 billion nearly doubles that amount. Among the largest 3Q16 deals were two PE buyouts of divested business units: Intel Security (formerly known as McAfee) and Safran’s identity and security business. Micro Focus’ deal for HPE’s software unit also included security technology. Security volume, however, fell 25% YOY to about 55 deals.

• Three big-ticket deals spurred advertising and marketing technology targets to $11.7 billion in 3Q16 disclosed value, more than four times the $2.7 billion we noted in 3Q15. YTD value of $18.8 billion is 77% higher than YTD 2015. Besides Verizon–Yahoo!, 3Q16’s largest was a $1.4 billion deal for US-based AppLovin by a Chinese PE firm. AppLovin’s technology helps mobile app developers market their products by personalizing messages to prospects who resemble their existing user base.14

Overall, volume declined 15% YOY to 120 deals for 3Q16.

Diverse AI technologies targeted by many different companiesAlthough there were no disclosed values among the 20 or so dealswe saw targeting AI technologies, the deals were notable for theirdiverse uses — and for who was doing the buying.

• AI and machine learning technologies, typically paired with big data, were targeted for uses including speech and image recognition, predicting buyer behavior, identifying hacker threats, advertiser retargeting, calendar scheduling, computer vision and self-driving cars. The following buyers announced 1 deal each, except where noted: Apple Inc. (2 deals), eBay Inc., Ford Motor Company, Alphabet Inc. (3), Intel (2), Microsoft Corporation, Rakuten, Inc. and Uber Technologies Inc.

$36.1b3Q16

PE volume set a newquarterly record of 100 deals1 more than the 99 deals in 3Q10

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3Q16 aggregate deal value makes it thethird-highest tech M&A quarter ever byvalue, rising 22% above 2Q16 (which isnow fourth).

$155.5b


Technology dealmaking is setting records because all buyers are motivated in the current environment. Incumbent tech companiesseek deals to accelerate mobile- and cloud-driven transformations; non-tech companies seek strategic technologies; and PE firms seek opportunity in hidden gems overlooked by many investors.”

Jeff Liu EY Global Technology Industry Leader Transaction Advisory Services

View our latest Technology Capital Confidence Barometer report atey.com/ccb/technology

“

Digital disruption drives tech M&A strengthdespite market uncertainty Rather than allowing geopolitical uncertainty and equity market volatility to slow dealmaking,global technology M&A buyers appear to be “rolling with the punches” in 2016. Technologyis in such a state of rapid evolution, and tech and most other industries are so deep intodisruptive digital technology transformations, that buyers know they can’t wait for marketsto smooth themselves out. Instead, tech dealmakers — whether tech incumbents, non-techbuyers or PE — seem to be watching for the opportunities that market volatility sometimescreates, and are ready to make deals when it does. All this suggests ongoing record-breakinglevels of tech M&A.

But that said, the October 2016 edition of our twice-yearly Capital Confidence Barometer(CCB) survey, which is becoming available alongside this report, sends mixed messagesabout the future of technology dealmaking. First, tech execs are concerned aboutmacroeconomic growth. A year ago, 80% of technology respondents saw the global economy improving; today, that response is down to 17%. Similarly, while the percentage of respondents who expect tech M&A levels to stay the same has increased significantly over the past year (from 18% in October 2015 to 43% in April 2016 to 62% in the currentreport), the rise comes from the ranks of those expecting M&A levels to improve (which fellover the same period from 80% to 52% to 29%). Yet at the same time, more respondentsexpect to pursue deals in the next 12 months: 50% today, up from 40% in April. And morecompanies have more deals in their pipeline. Most notably, 12% have five deals or more, up from 0% in April.

Whether global tech dealmaking stabilizes, falls or continues rising, each company must pursue its own strategic course. To help assess your dealmaking opportunities, we suggest technology executives test their organizations against these questions:

• Are we positioned to offer customers true solutions, or even answers, as opposed to just a point offering in the overall technology stack?

• Is there a “hidden gem” among our business units and other departments with the potential to drive greater value?

• Has disruptive technology placed our organization “in the crosshairs” of some upstart companies, or of activist investors?

• Are we doing all we can to provide comprehensive security in our offerings?

http://www.ey.com/gl/en/industries/technology/ey-capital-confidence-barometer


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Americas value climbed YOY and sequentially in 3Q16 to the highest level this year, due primarily to a record number of big-ticket transformative deals by tech and non-tech buyers. Though volume declined, Americas buyers still accounted for nearly60% of global transactions and an even higher percentage of cloud/SaaS, big data analytics, IoT, advertising and marketing, HIT and online video deals.

Regional snapshot

Americas

• Americas aggregate disclosed value rose 10% sequentiallyand 69% YOY to $80 billion, driven by a record 20 deals above $1 billion (totaling $67.6 billion, or 84% of Americas value). But APJ and EMEA grew faster, so the Americas’ share of globalvalue fell to 51% from 57% in 2Q16. YTD, the region had 53% ofglobal value, compared with 73% in full-year 2015.1

• Volume fell 18% sequentially and 20% YOY to 534 deals in 3Q16.The Americas accounted for 59% of global transactions, comparedwith 64% in full-year 2015.

• A megadeal between analog chip companies reflected continuingsemiconductor consolidation. By combining its strengths in dataconverters with Linear Technology’s complementary power-management chips, Analog Devices is targeting growth opportunitiesin industrial, automotive and communications infrastructure.2,3

• Transformative deals by non-tech buyers included two by telecommunications provider Verizon Communications, markingits continuing diversification into media and IoT.4 Verizon plans toacquire core web assets of Yahoo! to combine with AOL (which itacquired last year) and build its advertising revenue.5 Verizon alsoacquired vehicle-tracking telematics company Fleetmatics PLC for$2.4 billion in the region’s largest IoT and connected-car deal.

• Other deals by non-tech buyers included one that increases Walmart’s e-commerce presence as it responds to the broad consumer shift to online shopping. The $3.3 billion deal forJet.com, which launched just last year, is the largest-ever purchase of a US e-commerce start-up.6

• Tech buyers also continued transformations. One example: Oracle’s$9.3 billion deal for NetSuite reflects its continuing transition tocloud computing.7

• Other prominent cloud/SaaS deals include the $4.3 billion PE acquisition of Rackspace, which has diversified from offering cloudservices to managing services from other providers as cloud-hostingcompetition has intensified.8 Overall, cloud/SaaS factored intomore than 200 Americas deals, representing 67% of globalcloud/SaaS volume and 88% of value.

• Divestitures included the $4 billion sale to a PE group of EmersonElectric Company’s division that provides power managementtechnology for IT and network infrastructure. Overall, Americas PE deals accounted for 64% of global PE volume and 66% of value,including eight deals for $1 billion or more.

• Americas buyers accounted for 17 of 19 global deals we noted targeting AI and machine learning. These included targets focusedon big data analytics, security, marketing, and sales and financialservices, as well as connected-car deals for computer vision andself-driving vehicle technologies.

• Big data analytics drove more than 70 deals totaling $5.5 billion.

• Advertising and marketing technology factored into 72 deals totaling $7.7 billion, including Verizon–Yahoo! n

Increase in Americas average deal value

164%

*Ernst & Young Capital Advisors, LLC (EYCA) is a registered broker-dealer and member of FINRA (finra.org) providing sector-specific advice on M&A, debt capital markets, equity capital markets and capital restructuring transactions. It is an affiliate of Ernst & Young LLP, a member firm of Ernst & Young Global Limited serving clients in the US.

“Americas non-tech companies are strategically using M&A to accelerate their digital transformations.”

David Hedley US Technology M&A Leader Ernst & Young Capital Advisors, LLC*

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Figure 9: Top five Americas deals (corporate and PE), 3Q16

Disclosed Premium Buyer Target value ($m) Announced Deal type offered

Analog Devices, Inc.

Oracle Corporation



Platinum Equity LLC

Linear Technology Corporation

NetSuite, Inc.

Operating business of Yahoo! Inc.

Rackspace Hosting, Inc.

Network Power business from Emerson Electric Company

Note: numbers may not add to totals due to rounding.


Figure 10: Americas transactions scorecard, 3Q16


615 470 –21% ▼ –24% ▼

117 64 –30% ▼ –45% ▼

$32,915 $56,265 –7% ▼ 71% ▲

$281 $879 33% ▲ 213% ▲

55 64 2% ▲ 16% ▲

14 20 43% ▲ 43% ▲

$14,348 $23,760 92% ▲ 66% ▲

$1,025 $1,188 34% ▲ 16% ▲

Corporate and PE





670 534 –18% ▼ –20% ▼

131 84 –20% ▼ –36% ▼

$47,263 $80,026 10% ▲ 69% ▲

$361 $953 38% ▲ 164% ▲

PE





Corporate





YOY % change

$14,880 26 Jul Corporate 32%


$4,830 25 Jul Corporate N/A

$4,343 26 Aug PE 37%

$4,000 2 Aug PE N/A


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APJ value rose to a new record in 3Q16 and volume matched the record set in 2Q16 as buyers targeted US and EMEA companiesin big-ticket deals, including the quarter’s largest global transaction. Deal growth was driven by activity in Japan, China, Indiaand Australia. Many deals focused on cloud/SaaS, mobility, big data analytics, gaming, and advertising and marketing.

Regional snapshot

Asia-Pacific* and Japan (APJ)

YOY increase in APJ disclosedvalue for 3Q16

2,156% “By strategically focusing on M&A targets in other regions, APJ companies are both acquiring strategic growth technologies and building platforms for overseas expansion.”

Ben KwanTransaction Advisory Services Technology, Media & Telecommunications (TMT) Market Segment LeaderEY Greater China

*Asia-Pacific includes India.

• Together, the SoftBank Group and Renesas deals accounted for99% of Japan’s $36 billion in 3Q16 disclosed value. Japan had16 deals overall, representing 11% of APJ volume.

• China, which has accounted for the biggest share of APJ value in recent quarters, was second in 3Q16 with $14.6 billion (28%of the region’s value). Still, Chinese buyers took three of the region’s top five deals, including the $4.4 billion PE acquisition ofIsraeli mobile-gaming company Playtika from US-based CaesarsInteractive Entertainment.

• In another top five deal, China’s LeEco, which began as an onlinevideo streaming service, is buying US television-maker Vizio,adding to its US presence and expanding its ambitious “sevenecosystem” strategy.5 LeEco, whose name means “joyful ecosystem,” plans to offer hardware — including smartphones,TVs and self-driving cars — as well as video and other online and mobile content.6

• Advertising and marketing technology drove about 15 deals, including the top five Chinese PE acquisition of US-based AppLovin, developer of a mobile advertising platform.

• Smart mobility factored into more than 40 deals, whilecloud/SaaS drove more than 30.

• China and India accounted for the most deal volume, with 40deals each. India’s deal targets included online retailers andother internet start-ups as well as developers of mobile apps and payment technologies.

• Cloud/SaaS was a factor in more than 40% of Australia’s 32 deals. n

• APJ disclosed value rose 33% sequentially and 2,156% YOY to$52.3 billion in 3Q16, eclipsing the record set in 2Q16.1 The$32.4 billion SoftBank Group–ARM megadeal accounted for 62%of APJ value.

• US and EMEA companies were targeted by Japanese and Chinese buyers in the top five transactions; overall, such dealsaccounted for 89% of APJ value.

• Illustrating the region’s rapid tech M&A growth, APJ’s $120.8 billion in aggregate value YTD is already more than double the $51.5 billion total for full-year 2015.

• Volume of 146 deals equaled the record set in 2Q16 and represented a 1% YOY increase over 3Q15. YTD, APJ volume has averaged 138 deals per quarter, slightly higher than 132last year.

• SoftBank Group’s acquisition of British chip-design companyARM marks a “paradigm shift” at the Japanese company to invest in IoT.2 ARM, known for the processors that power most smartphones, is devoting more resources to other areas, including IoT devices, and network and IT infrastructure.3

Largely due to this deal, APJ accounted for nearly 90% of global IoT value.

• Connected cars drove another top five semiconductor deal by a Japanese company: the $3.2 billion acquisition by RenesasElectronics of US-based Intersil. Intersil’s products includepower-management chips used in cars. The deal strengthens Renesas’ position in the expanding market for automotive-related semiconductors.4


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SoftBank Group Corporation

Giant Investment and consortium of investors

Renesas Electronics Corporation

LeEco (fka Letv)

Orient Hontai Capital

ARM Holdings plc

Playtika Ltd.

Intersil Corporation

Vizio, Inc.

AppLovin Corporation


$4,400 30 Jul PE N/A

$3,219 13 Sep Corporate 48%

$2,000 26 Jul Corporate N/A

$1,400 26 Sep PE N/A

Figure 11: Top five APJ deals (corporate and PE), 3Q16

Figure 12: APJ transactions scorecard, 3Q16


133 139 3% ▲ 5% ▲

32 42 –25% ▼ 31% ▲

$1,632 $45,333 55% ▲ 2,678% ▲

$51 $1,079 107% ▲ 2,016% ▲

12 7 –36% ▼ –42% ▼

7 5 –29% ▼ –29% ▼

$688 $6,985 –32% ▼ 915% ▲

$98 $1,397 –5% ▼ 1,326% ▲

Corporate and PE





145 146 0% − 1% ▲

39 47 –25% ▼ 21% ▲

$2,319 $52,318 33% ▲ 2,156% ▲

$59 $1,113 78% ▲ 1,786% ▲

PE





Corporate





YOY % change




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Regional snapshot

Europe, the Middle East and Africa (EMEA)EMEA value grew strongly in 3Q16 as buyers targeted US companies in big-ticket deals. Cloud/SaaS, security, smart mobility,advertising and marketing, big data analytics and IoT drove many deals.

• Disclosed value rose 54% sequentially and 46% YOY to $23.2 billion, the highest level since 2Q15. Big-ticket dealsdrove the growth: six deals for $1 billion or more together accounted for 76% of EMEA value.

• Four of the big-ticket deals targeted US companies for technologyand growth prospects, following a pattern seen often in the lasttwo years. Overall, US targets accounted for 66% of EMEA disclosed value.

• Security and big data analytics had key roles in the $8.8 billiondeal by HPE to spin off and merge most of its software operationsinto UK-based Micro Focus. Under the deal, Micro Focus will payHPE $2.5 billion in cash, and HPE shareholders will own 50.1% of the combined company.1 The deal includes HPE products forenterprise security, big data analytics and IT operations, and willresult in a combined company with approximately $4.5 billion in revenue.2 It’s the biggest-ever tech deal acquired by a UK firm.3

• Security was also the focus of two other top five deals. PE groupsAdvent International and Bpifrance are acquiring the securityand identity business of French aerospace and defense supplierSafran. The buyers plan to combine the business with previouslyacquired Oberthur Technologies to create a global player providingbiometrics-based identity solutions, as well as technology forsmart cards and other applications.4 In the other security deal,anti-virus software company Avast Software of the Czech Republicis buying rival AVG Technologies of the Netherlands for $1.3 billion. Overall, EMEA accounted for 76% ($12.8 billion) of global security deal value in 3Q16.

• Unusually, EMEA had the quarter’s largest global HIT deal, a technology in which the US often predominates. A Swedish PE group announced plans to buy Press Ganey Associates, a provider of patient experience measurement, performance analytics and strategic advisory solutions for health care organizations.

• Non-tech buyers acquired 16% of EMEA volume and 13% of value.They included a $1 billion deal in which UK consumer-goodscompany Unilever is acquiring US-based e-commerce start-upDollar Shave Club, which specializes in men’s shaving and otherpersonal grooming products.

• EMEA IoT deals accounted for 28% of global IoT volume. Dealstargeted technologies including wireless connectivity, networkmanagement, security and vehicle tracking.

• Cloud/SaaS factored into about a third of EMEA deals.

• EMEA buyers also accounted for roughly a third of global dealstargeting payments and financial technologies.

• The UK had the most EMEA transactions, as usual, at 92 deals(40% of EMEA volume). Germany had 27 deals (12%); Franceand Sweden had 26 deals (11%) each. n

“EMEA companies are taking advantage of digital disruption and using M&A, particularly targeting US companies, to stay abreast of key worldwide technology trends and innovations, including cybersecurity, IoT, e-commerce and financial technology.”

Simon Pearson TMT Corporate Finance Leader, United Kingdom and Ireland Region (UKI)EY UKI

YOY rise in EMEA disclosed value46%


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Figure 13: Top five EMEA deals (corporate and PE), 3Q16


Micro Focus International plc

Bpifrance Investissement/Advent International Corporation

EQT AB

Teleperformance SA

Avast Software AS

Software Business division of Hewlett-Packard Enterprise

Safran’s Identity and Security businesses(Safran I&S)

Press Ganey Associates, Inc.

LanguageLine Solutions LLC

AVG Technologies NV

$8,800 7 Sep Corporate N/A

$2,726 29 Sep PE N/A

$2,214 9 Aug PE 1%

$1,522 22 Aug Corporate N/A


Figure 14: EMEA transactions scorecard, 3Q16


240 202 –7% ▼ –16% ▼

67 60 9% ▲ –10% ▼

$15,505 $17,841 49% ▲ 15% ▲

$231 $297 37% ▲ 29% ▲

14 29 38% ▲ 107% ▲

3 6 20% ▲ 100% ▲

$335 $5,309 75% ▲ 1,485% ▲

$112 $885 46% ▲ 690% ▲

Corporate and PE





254 231 –3% ▼ –9% ▼

70 66 10% ▲ –6% ▼

$15,839 $23,150 54% ▲ 46% ▲

$226 $351 40% ▲ 55% ▲

PE





Corporate





YOY % change



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Japan’s $32.4 billion megadeal and China’s continuing elevated level of CB dealmaking helped drive a record-shattering $80.8 billion CB disclosed value for global technology M&A in3Q16. Buying by those Asian countries pushed both Europe andthe US into being net sellers (for the third consecutive quarter) —and it almost obscured the fact that CB deals targeting UScompanies peaked again in 3Q16.

• That new CB value record is 85% higher than the prior record($43.6 billion set in 2Q15) and an increase of 116% sequentiallyand 235% YOY. It represented 52% of 3Q16 aggregate value,compared with 31% for the first six months of 2016 and 28% forfull-year 2015.

• YTD CB disclosed value totaled $140.4 billion at the end of3Q16, already 10% higher than the previous full-year record of$127.4 billion set in 2015. The top five acquiring countries for the first nine months were China ($40.4 billion), Japan($36.6 billion), the US ($14.1 billion), the UK ($13.6 billion)and Canada ($8.1 billion).

• The third quarter would have set a new value record even withoutSoftBank Group’s megadeal for chip designer ARM, which thecompany sees as a paradigm-shifting IoT investment (see APJsnapshot, page 14). That deal accounted for 90% of Japan’s3Q16 disclosed value ($35.9 billion, or 44% of all CB value forthe quarter). The rest came from Renesas’ $3.2 billion deal for US-based Intersil, another chip company pursuing IoT in automotive (see APJ snapshot, page 14).

• China’s $10.2 billion in disclosed-value CB deals was down from$21.3 billion in the prior quarter but still more than the entire$9.2 billion in CB disclosed value that China posted for full-year2015. Three deals topped $1 billion (see APJ snapshot, page 14).

• Nine of 3Q16’s 15 CB deals at or above $1 billion targeted UScompanies. US targets accounted for $15.2 billion (82%) of the $18.5 billion in CB disclosed value acquired by Europeancompanies; $4.1 billion (40%) of the $10.2 billion acquired by Chinese companies; 100% of the $6.6 billion acquired byCanadian companies; and 97% of the $2.3 billion acquired bySwedish companies.

• In all, US tech companies were targeted in CB deals with aggregate disclosed value of $29.9 billion, 20% higher than theprior peak of $24.9 billion in 3Q14. Meanwhile, the US continuedlower-than-usual CB buying of its own: its YTD CB value total is29% lower than YTD 2015 ($19.8 billion). But US disclosed CBvalue did rise in 3Q16 — its total of $8.4 billion eclipsed the firsttwo quarters of the year combined ($5.7 billion).

• In volume terms, the US was again targeted in 84 CB deals (the same number as in 2Q16), followed by the UK (57 deals),France (24), Germany (20), and Canada and the Netherlandstied at 15. n

Cross-border value flowJapan and China drive new CB value records; buyers in many countries target US companies — again


Note: percentages may not total to 100% due to rounding.


3Q16

Figure 15: Cross-border deal value flow for technology deals (disclosed value), 3Q16

CB value acquired $80.8b

CB value sold $80.8b Canada 2%Asia-Pacific 2%

India 1%

US10%

Europe23%

US37%

Other8%

Europe50%

Asia-Pacific14%

Japan44%

Canada8%

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Softening of US dealmaking was the main factor in the overall 3Q16 volume decline in global technology dealmaking, both sequentially and YOY. US dealmaking (combinedcorporate and PE) fell 119 deals sequentially (-19%) and 126 deals YOY (-20%), accounting for most of the overall global volume decline (128 deals sequentially and 158deals YOY). But US CB buying held up: it contracted by only 7 deals sequentially and 26 deals YOY. That helped CB deal volume grow as a share of all deals (see Figure 18,page 21). Meanwhile, China’s 40 deals were nearly double its 3Q15 total, despite falling 25% sequentially. YTD, China has done 127 deals — 1 more than twice its 2015 YTDtotal (63). All of the overall volume decline came from corporate dealmaking; PE set a volume record in 3Q16, with more than a third of its 100 deals going across borders.

Countries that saw the largest sequential increases in CB dealmaking (combined corporate and PE) were the UK (+13 deals), Australia (+8), France (+7), Japan (+7) andGermany (+5). Canada matched the US 7-deal sequential decline and only 3 of China’s 13-deal decline were across borders. The overall strength of CB deal volume maysimply reflect deal timing, as it reverses CB weakness and IB strength seen last quarter.



Figure 16: Global corporate and PE deals by acquiring country: cross-border and in-border(IB), 3Q16

Corporate deals 3Q16

Top countries 3Q15 deals 3Q16 deals % total deals No. IB deals 0% 50% 100% No. CB deals

US 567 441 54% 334 107

UK 84 77 9% 38 39

India 45 40 5% 36 4

China/HK 15 34 4% 22 12

Australia 33 31 4% 19 12

Canada 44 25 3% 8 17

Germany 25 24 3% 10 14

France 24 22 3% 2 20

Sweden 21 21 3% 5 16

Japan 17 16 2% 3 13

Other 113 80 10% 16 64

Total 988 811 100% 493 318PE deals 3Q16

Top countries 3Q15 deals 3Q16 deals % total deals No. IB deals 0% 50% 100% No. CB deals

US 53 53 53% 47 6

UK 11 15 15% 7 8

Canada 1 8 8% 3 5

China/HK 6 6 6% 1 5

Sweden 0 5 5% 2 3

France 0 4 4% 1 3

Germany 0 3 3% 2 1

Other 10 6 6% 1 5

Total 81 100 100% 64 36

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Number of deals

3Q15 Sequential% change

3Q16 YOY % change

Average value ($m)


3Q16 YOY % change

CE

CPE

Internet

IT services

Semiconductors

Software/SaaS

Total

CE

CPE

Internet

IT services

Semiconductors

Software/SaaS

Total

5 2 –67% ▼ –60% ▼

5 10 150% ▲ 100% ▲

14 11 –15% ▼ –21% ▼

16 27 35% ▲ 69% ▲

4 4 33% ▲ 0% −

37 46 –6% ▼ 24% ▲

81 100 5% ▲ 23% ▲

$117 $197 -90% ▲ 68% ▲

$2,706 $2,001 –20% ▼ –26% ▼

$161 $1,889 14% ▲ 1,073% ▲

$223 $1,163 157% ▲ 422% ▲

$241 $258 –79% ▼ 7% ▲

$542 $927 24% ▲ 71% ▲

$640 $1,163 18% ▲ 82% ▲

26 22 –37% ▼ –15% ▼

76 75 –9% ▼ –1% ▼

177 129 –10% ▼ –27% ▼

302 248 –8% ▼ –18% ▼

29 27 –33% ▼ –7% ▼

459 410 –12% ▼ –11% ▼

1,069 911 –12% ▼ –15% ▼

$136 $324 –6% ▼ 138% ▲

$550 $602 –2% ▼ 9% ▲

$291 $862 –23% ▼ 196% ▲

$111 $288 –4% ▼ 159% ▲

$593 $3,176 326% ▲ 436% ▲

$236 $633 44% ▲ 168% ▲

$273 $789 41% ▲ 189% ▲

Figure 17: Global technology corporate and PE transactions by sector, 3Q16

CE

CPE

Internet

IT services

Semiconductors

Software/SaaS

Total

Corporate deals

PE deals

Total deals

21 20 –31% ▼ –5% ▼

71 65 –17% ▼ –8% ▼

163 118 –10% ▼ –28% ▼

286 221 –12% ▼ –23% ▼

25 23 –38% ▼ –8% ▼

422 364 –13% ▼ –14% ▼

988 811 –14% ▼ –18% ▼

$144 $340 49% ▲ 136% ▲

$301 $410 –23% ▼ 36% ▲

$298 $591 –44% ▼ 98% ▲

$99 $194 –33% ▼ 96% ▲

$643 $3,801 458% ▲ 491% ▲

$204 $563 49% ▲ 176% ▲

$232 $720 43% ▲ 210% ▲ �

Overall 3Q16 average value leaped for the second consecutive quarter, 41% sequentially and 189% YOY to a new all-time record of $789 million. As with the 2Q16 increase,it was the sheer volume of big-ticket deals that drove the rise: 32 3Q16 deals rose to $1 billion or above, including 2 semiconductor acquisitions that crossed the megadealline to $14.9 billion and $32.4 billion. The record eclipsed 4Q15’s prior record of $742 million, set in a quarter with 20 deals topping $1 billion (including 1 at $67 billion).Besides semiconductors, internet sector targets also played a role in the record, with six deals above $1 billion (three bought by PE firms and three by non-tech buyers).

From a volume perspective, we rarely see all sectors fall simultaneously, as in 3Q16. Even in 4Q15, which saw volume drop by 137 deals sequentially (compared with 3Q16’s 128-deal sequential decline), only four of six sectors declined both sequentially and YOY. Tech M&A quarterly volume has fluctuated the last two years between the low 900s and about 1,050, falling to the low end of that range in 3Q16 (911 deals). So we’re considering the all-sector decline was simply the result of deal timing andserendipity — for now.


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Figure 18: Cross-border corporate and PE transactions by sector, 3Q16

Number of deals


3Q16 YOY % change

Average value ($m)


3Q16 YOY % change

CE

CPE

Internet

IT services

Semiconductors

Software/SaaS

Total

CE

CPE

Internet

IT services

Semiconductors

Software/SaaS

Total

4 1 –50% ▼ –75% ▼

2 2 –33% ▼ 0% −

2 7 40% ▲ 250% ▲

5 9 29% ▲ 80% ▲

2 4 33% ▲ 100% ▲

8 13 63% ▲ 63% ▲

23 36 29% ▲ 57% ▲

$117 $0 N/A − –100% ▼

$59 $263 –90% ▼ 346% ▲

$0 $2,345 74% ▲ N/A −

$386 $0 –100% ▼ –100% ▼

$0 $258 –79% ▼ N/A −

$96 $981 21% ▲ 922% ▲

$125 $1,178 13% ▲ 842% ▲

11 11 –27% ▼ 0% −

34 29 –19% ▼ –15% ▼

50 38 –19% ▼ –24% ▼

104 100 20% ▲ –4% ▼

13 15 –25% ▼ 15% ▲

159 161 13% ▲ 1% ▲

371 354 3% ▲ –5% ▼

$214 $263 952% ▲ 23% ▲

$453 $333 –61% ▼ –26% ▼

$156 $1,048 223% ▲ 572% ▲

$73 $251 –6% ▼ 244% ▲

$1,141 $3,206 482% ▲ 181% ▲

$148 $742 21% ▲ 401% ▲

$226 $919 82% ▲ 307% ▲

CE

CPE

Internet

IT services

Semiconductors

Software/SaaS

Total

Corporate deals

PE deals

Total deals

7 10 –23% ▼ 43% ▲

32 27 –18% ▼ –16% ▼

48 31 –26% ▼ –35% ▼

99 91 20% ▲ –8% ▼

11 11 –35% ▼ 0% −

151 148 10% ▲ –2% ▼

348 318 1% ▲ –9% ▼

$310 $263 952% ▲ –15% ▼

$513 $338 –49% ▼ –34% ▼

$156 $307 57% ▲ 97% ▲

$58 $251 18% ▲ 333% ▲

$1,141 $4,189 1,087% ▲ 267% ▲

$153 $688 15% ▲ 350% ▲

$235 $874 108% ▲ 272% ▲ �

CB volume stayed stronger than IB in 3Q16, while the average value of CB deals roared past all-deal average value for the first time in six quarters. CB deal volume grew 3%sequentially (compared with the global volume decline of 12%) and fell only 5% YOY (compared with a 15% decline, globally). Consequently, CB’s share of global volume roseto 39% in 3Q16 from 33% in 2Q16. Software/SaaS and IT services targets drove the sequential growth (up 19 and 17 deals, respectively), while all other sectors declined.

Meanwhile, 15 CB deals at or above $1 billion drove the average value of CB deals past that of all deals for the first time since 1Q15. Even as global all-deal average value set a new record of $789 million, CB average value rose to a record $919 million. The big-ticket deals behind the CB rise included the quarter’s largest, SoftBank Group’s$32.4 billion bid for UK-based ARM, as well as the largest-ever CB acquisition by a UK technology company — Micro Focus’ $8.8 billion deal for HPE’s software division (see EMEA snapshot, page 16).



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Disclosedvalue ($m) Deal type

Multiple of EV/TTM revenue

Multiple ofEV/TTMEBITDA

Premium offeredAnnounced

Kohlberg Kravis Roberts & Co. L.P.

Renesas Electronics Corporation

Bpifrance Investissement/Advent International Corporation

Tech Data Corporation


EQT AB

TPG Capital

LeEco (fka Letv)

Citrix Systems, Inc.

Xylem, Inc.

OpenText Corporation

Vista Equity Partners Management LLC

Teleperformance SA

Honeywell International, Inc.

Orient Hontai Capital

Genesys Telecommunications Laboratories, Inc.

Avast Software AS

Thoma Bravo LLC

Guangdong Nanyang Cable GroupHolding Co.,Ltd.

HP Inc.


Unilever Plc

Epicor Software Corporation

Intersil Corporation

Safran’s Identity and Security businesses (Safran I&S)

Technology solutions business unit of Avnet, Inc.

Fleetmatics PLC

Press Ganey Associates, Inc.

Intel Security (fka McAfee) from Intel Corporation

Vizio, Inc.

LogMeIn, Inc.

Sensus

Enterprise Content division of Dell’s EMC Corporation

Infoblox, Inc.

LanguageLine Solutions LLC

Intelligrated, Inc.

AppLovin Corporation

Interactive Intelligence Group, Inc.

AVG Technologies NV

TRADER Corporation

Beijing Topsec Network Security Technology Co. Ltd.

Printing business of Samsung Electronics Co. Ltd.

Outerwall, Inc.

Dollar Shave Club

$3,300 5 Jul PE N/A N/A N/A

$3,219 13 Sep Corporate 5.8x 37.6x 48%

$2,726 29 Sep PE 1.5x N/A N/A

$2,600 19 Sep Corporate 0.3x N/A N/A

$2,400 1 Aug Corporate 7.5x 32.0x 39%

$2,214 9 Aug PE 6.8x 23.5x 1%

$2,200 7 Sep PE N/A N/A N/A

$2,000 26 Jul Corporate 0.6x 24.0x N/A

$1,800 26 Jul Corporate 5.2x 45.5x N/A

$1,700 15 Aug Corporate 2.0x 8.9x N/A


$1,600 19 Sep PE 3.5x N/A 32%

$1,522 22 Aug Corporate 3.9x 10.4x N/A

$1,500 1 Jul Corporate N/A N/A N/A

$1,400 26 Sep PE N/A N/A N/A

$1,400 31 Aug Corporate 3.3x 308.4x 12%

$1,300 7 Jul Corporate 3.2x 11.0x 30%

$1,210 1 Jul PE N/A N/A N/A

$1,057 2 Aug Corporate N/A N/A N/A


$1,014 25 Jul PE 0.8x 4.0x 20%

$1,000 2 Jul Corporate 6.6x N/A N/A

Buyer Target

Figure 19: Remainder of deals greater than or equal to $1 billion, 3Q16


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• Global technology M&A update: July-September 2016 is based on EY’s analysis of The 451 Group M&A KnowledgeBase data. Deal activity and valuations may fluctuate slightly based on the date the database is accessed.• Technology company M&A data was pulled from The 451 Group M&A KnowledgeBase based on the database’s own classification taxonomy, and then deals were aligned to the following sectors: CE, CPE, semiconductors, software/SaaS, IT services and internet companies. Alignment was based on the sector of the target company. • The data includes M&A transactions between two technology companies as well as non- technology companies acquiring technology companies.• Joint ventures were not included. • Corporate M&A activity data was analyzed based on the sector classification of the target company. Prior to 2012, we reported based on the classification of the acquiring company; the change enables a clearer picture of the technologies being focused on for acquisition. • Equity investments that involved less than

a 50% stake were not included in the data. • PE M&A activity includes both full and partial stake transactions in excess of 50% and was analyzed based on acquisitions by firms classified as private equity, sovereign wealth funds, investment holding companies, alternative investment management groups, certain commercial banks, investment banks, venture capital and other similar entities.• Unsolicited technology deal values were not included in the data set, unless the proposed bid was accepted and the deal closed based on data available at the time of analysis.• The value and status of all deals highlighted in this report are as of 30 September 2016, unless otherwise noted.• All dollar references are in US dollars, unless otherwise indicated.• In this report, disclosed deal values may vary from other published values because The 451 Group database methodology automatically subtracts cash acquired, net of debt, from enterprise value. Additionally, announced deal values are often subject

to change at the time of close, due to subsequent revisions to the terms of the deal and/or changing stock valuations to the extent stock was used as a deal consideration.• As used in this report, “total value” refers to the aggregate value of deals with disclosed values for the period under discussion.• Other definitions: • “TTM” stands for “trailing 12 months.” • “Multiple of EV/TTM revenue” is the transaction value multiple representing total enterprise value over trailing 12 months of target revenue. • “Multiple of EV/TTM EBITDA” is the transaction value multiple representing total enterprise value over trailing 12 months of target EBITDA (earnings before interest, taxes, depreciation and amortization). • “Premium offered” represents the percentage difference between the purchase price and the share price value 30 days prior to the announcement of the deal. Where data is unavailable from The 451 Group, premium data was accessed via Capital IQ. n

Methodology

Digital transformation spurs value records1 Technology Capital Confidence Barometer: drive for innovation and growth sustains record tech M&A, October 2016, © 2016 EYGM Limited.

2 “Oracle Purchase of NetSuite Will Help It Vie With Cloud Rivals,” Bloomberg, 28 July 2016, © 2016 Bloomberg L.P.

3 Hunting for hidden gems, EY, © 2015 EYGM Limited.4 “UK’s Micro Focus and Hewlett-Packard agree £6.6bn software deal,” The Guardian, 8 September 2016, © 2016 Guardian News and Media Limited or its affiliated companies.

5 “HP Agrees to Acquire Samsung Printer Business for $1.05 Billion,” The Wall Street Journal Online, 12 September 2016, © 2016 Dow Jones & Company Inc.

6 “What is LeEco, and why is it buying Vizio?” The Verge, 27 July 2016, © 2016 Vox Media, Inc.

7 Ibid.8 “Verizon Accelerates Smart Communities with the Acquisition of Sensity Systems,” Sensity Systems press release, 12 September 2016, © 2016 Sensity Systems Inc.

9 “Walmart Inks $3.3 Billion Deal For Jet.com In Biggest US E-commerce Acquisition Ever,” Forbes.com, 8 August 2016, © 2016 Forbes.com LLC.

10 “Startups Cash Out Before IPOs as Venture Capitalists Turn Pickier,” The Wall Street Journal Online, 8 August 2016, © 2016 Dow Jones & Company Inc.

11 “Digital Technologies Raise the Stakes in Customer Service,” bcg.perspectives, 18 May 2016, © 2016 The Boston Consulting Group.

12 “Teleperformance of France Buying LanguageLine

for $1.52 Billion,” Bloomberg, 22 August 2016, © 2016 Bloomberg L.P.

13 According to analysis provided by our M&A KnowledgeBase provider, 451 Research LLC.

14 “AppLovin to Be Acquired by Chinese Investor for $1.4 Billion,” Fortune.com, 26 September 2016; © 2016 Time Inc.

15 In the crosshairs: private equity firms help tech companies reinvent themselves, EY, © 2016 EYGM Limited.

16 “Verizon to acquire Yahoo’s operating business,” Verizon press release, 25 July 2016, © 2016 Verizon.

Regional snapshot: Americas1 Global technology M&A report October–December 2015 and year in review, EY, © 2016 EYGM Limited.

2 “ADI to Acquire Linear Tech for $14.8 Billion,” EE Times, 26 July 2016, © 2016 UBM, accessed via eetimes.com/document.asp? doc_id=1330204&_mc=RSS_EET_EDT.

3 “Analog Devices and Linear Technology to Combine Creating the Premier Analog Technology Company,” Analog Devices press release, 26 July 2016, © Analog Devices, Inc.

4 “Verizon, The Internet Of Things, And Mass Media,” Seeking Alpha, 7 August 2016, © 2016 Seeking Alpha.5 “Verizon Agrees to Buy Yahoo’s Web Assets for $4.83 Billion,” The Wall Street Journal, 25 July 2016, © 2016 Dow Jones & Company Inc.

6 “Wal-Mart to Acquire Jet.com for $3.3 Billion in Cash, Stock,” The Wall Street Journal, 25 July 2016, © 2016 Dow Jones & Company Inc.

7 “Oracle to Buy Cloud-Software Provider NetSuite for $9.3 Billion,” The Wall Street Journal, 28 July 2016, © 2016 Dow Jones & Company Inc.

8 “Rackspace to Go Private in $4.3 Billion Deal,” The Wall Street Journal, 28 August 2016, © 2016 Dow Jones & Company Inc.

Regional snapshot: APJ1 Global technology M&A report, April-June 2016 final look, EY, © EYGM Limited.

2 “SoftBank to Buy ARM Holdings for $32 Billion,” The Wall Street Journal, 18 July 2016, © 2016 Dow Jones & Company, Inc.

3 Ibid.4 “Renesas to Buy Intersil for $3.2 Billion,” The Wall Street Journal, 13 September 2016, © 2016 Dow Jones & Company, Inc.

5 “What is LeEco, and why is it buying Vizio?” The Verge, 27 July 2016, © 2016 Vox Media, Inc.

6 “LeEco Is Already Big In China — Now It Looks To Conquer The U.S.,” Forbes, 13 October 2016, © 2016 Forbes Media LLC.

Regional snapshot: EMEA1 “HP Enterprise Reaches $8.8 Billion Software Deal With Micro Focus,” The Wall Street Journal, 7 September 2016, © 2016 Dow Jones & Company, Inc.

2 Ibid.3 “UK’s Micro Focus and Hewlett-Packard agree £6.6bn software deal,” The Guardian, 8 September 2016, © 2016 Guardian News and Media Limited or its affiliated companies.

4 “Advent International, alongside Bpifrance, enters into exclusive negotiations with Safran to acquire Safran Identity & Security,” Advent International press release, 29 September 2016, © 2016 Advent International Corporation.

Source notes


Ranjan BiswasIndia+91 806 727 5131 [email protected]

Tim DuttererCo-Leader Technology, Parthenon-EY+1 415 264 [email protected]

Staffan EkströmGlobal Telecoms Leader —Transactions andTMT Leader, Nordics+46 8 520 593 90 [email protected]

Arjan Groen Operational Transaction ServicesNetherlands +31 884 071 087 [email protected]

David HedleyUS Technology M&A Leader+1 415 984 7128 [email protected]

Neil HuttUnited Kingdom+44 1189 281535 [email protected]

Ben KwanTAS and TMT Market Segment LeaderGreater China+852 2849 9223 [email protected]

Ron MurphyTransaction Advisory Services EY San Francisco Bay Area+1 415 894 [email protected]

Simon PearsonUnited Kingdom+44 20 7951 0418 [email protected]

Barak RavidCo-Leader Technology, Parthenon-EY+1 415 894 [email protected]

Dr. Carsten F. RischGermany+49 30 25471 21426 [email protected]

Eric SanschagrinTMT Transaction Advisory, EMEIA +44 207 951 9650 [email protected]

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This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax or other professional advice. Please refer to your advisorsfor specific advice.

About EY’s Global Technology SectorEY’s Global Technology Sector is a global network of more than 21,000technology practice professionals from across our member firms, all sharingdeep technical and industry knowledge. Our high-performing teams arediverse, inclusive and borderless. Our experience helps clients grow, manage,protect and, when necessary, transform their businesses. We provideassurance, advisory, transaction and tax guidance through a network ofexperienced and innovative advisors to help clients manage business risk,transform performance and improve operationally. Visit us atey.com/technology.

Ernst & Young Capital Advisors, LLC (EYCA) is a registered broker-dealer andmember of FINRA (finra.org) providing sector-specific advice on M&A, debtcapital markets, equity capital markets and capital restructuring transactions. It is an affiliate of Ernst & Young LLP, a member firm of Ernst & Young GlobalLimited, serving clients in the US.

Global Technology Sector

Greg CudahyEY Global Leader — TMT Technology, Media & Entertainment and Telecommunications+1 404 817 [email protected]

Technology service line leaders

Jeff Liu EY Global Technology Industry Leader Transaction Advisory Services +1 415 894 8817 [email protected]

Channing Flynn EY Global Technology Industry Leader Tax Services +1 408 947 5435 [email protected]

Dave Padmos EY Global Technology Industry Leader Advisory Services +1 206 654 6314 [email protected]

Guy Wanger EY Global Technology Industry Leader Assurance Services +1 650 802 4687 [email protected]

Transaction Advisory Services (TAS)key technology contacts

Documents

Digital transformation spurs value records · 2016-11-17 · 02 Highlights 03 Digital transformation spurs value records 11 Look ahead 12 Regional snapshots 23 Methodology 23 Source