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Tech Dealmaking Picks Up the Pace

15 August 2014 in Trading Ideas

Fans of big technology mergers were in luck during the most recent second quarter: The value of tech deals hit $26.7 billion during the period, up 87% from a year ago, according to a recent report by PricewaterhouseCoopers.1

While software and Internet companies controlled technology merger and acquisition activity during the quarter, it was hardware and semiconductor firms that recorded the highest value of transactions, including the $7.2 billion purchase of Nokia by Microsoft.

Large deals also included the $6.6 billion purchase of chipmaker LSI by Avago Technologies.

Software recorded 20 transactions (a 150% increase from a year ago), while the Internet sector completed 15 deals, mostly focusing on e-commerce.

And, as evidence that the tech-deal spigot doesn’t appear to be turning off, the tally doesn’t include two big deals that were announced in the second quarter but haven’t yet been completed, including the $3 billion purchase of Beats Electronics by Apple and Priceline’s buy of OpenTable.

In addition, tech-focused IPOs accelerated, with 22 new public companies garnering proceeds of $5.1 billion, according to PwC.2

“This upward trend in IPO markets combined with the tremendous pent-up cash balances of the leading technology players bodes well in driving the momentum of technology M&A through the remainder of the year,” PwC noted.

That assertion supports part of the theory behind the Tech Takeout Targets motif, which is up 6.3% over the past three months. In that same time frame, the S&P 500 has returned 2.5%.

So far this year, the motif is down 17.3%; the S&P 500 has increased 5.9%.

With the proliferation of Internet-connected and wearable devices, PwC sees the “Internet of Things” continuing to evolve. These trends will drive demand for specialized semiconductor, conductor components and software, PwC said. Cloud computing, mobile technology and social networking are other areas driving innovation and likely to become hot M&A sectors.

1Brian Deagon, “Technology M&A Deals Hit $26.7 Billion in Q2, Up 87%,” investors.com, Aug. 7, 2014, http://news.investors.com/technology/080714-712273-technology-mergers-and-acquisitions-jump.htm, (accessed Aug. 14, 2014).

2Sarah Drake, “Software, Internet Sectors lead U.S. M&A deals,” bizjournals.com, Aug. 7, 2014, http://www.bizjournals.com/sanjose/news/2014/08/07/software-internet-sectors-lead-u-sm-a-deals.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+industry_2+(Industry+Banking+%26+Financial+Services), (accessed Aug. 12, 2014).