Tech Deals May Be Down But They Still Represent Lion's Share of M&A Activity in the U.S.

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Although deal volume in Silicone Valley has declined due to the sagging global economy, the tech industry still generates one-fifth of all U.S. merger and acquisition (M&A) deal volume so far this year, more than any other sector, according to PwC.

In its latest U.S. Technology M&A Insights Report, PwC also says the busiest technology acquirers have switched gears to focus on integrating large acquisitions that closed in the last four quarters, and to potentially shed non-core assets in coming months.

Downward Trend

In the second quarter of 2012, PwC found that the tech sector deals continued their downward trend, as transaction volume decreased 15 percent to 55 deals, compared to 65 deals closed in the previous quarter. Despite the decline in volume, cumulative transaction deal value increased 8 percent to $31.8 billion.

A year ago, deal activity in the second quarter of 2011 totaled 85 transactions with a cumulative deal value of $26.8 billion, representing a deal volume decrease of 35 percent, but an increasing deal value of 19 percent in the second quarter of 2012.

An Increase in Consortium Deals

"The higher market volatility triggered an increasing number of consortium deals by private equity buyers, minority stake transactions and growing patent acquisitions," said Rob Fisher, PwC's U.S. technology industry transaction services leader.  "Driven by the hyper-competitive technology landscape, tech players are becoming more aggressive in expanding patent portfolios to defend market positions, pointing to greater creativity in the continuous race for growth and innovation."

After a robust first quarter of IPO activity, technology IPOs pulled back in the second quarter with 10 listings recorded compared to 13 in the previous quarter. The decline reflects an overall U.S. IPO trend, which saw IPO volumes decrease 39 percent from the first quarter. Despite declines in the technology industry, technology IPOs led all other industries in both volume and value during the quarter.

Six deals in excess of $1 billion closed during the second quarter with a combined value of $23.3 billion. Triggered by one large acquisition, the average deal value for the quarter was $578 million, well above the $315 million average in the second quarter of 2011. According to PwC, average deal value is expected to decline for the remainder of 2012, signaled by fewer deals announced above $1 billion and no deals announced in excess of $5 billion in the past six months.

"The line between Internet and software continues to blur as acquirers augment cloud-based offerings and push more services to the Web," said Fisher. Second quarter tech M&A trends continue with accelerated software and Internet sector deal activity. E-commerce and cloud services and solutions, along with stand-alone and Internet-based software products, represented a staggering 58 percent of deal volume during the quarter.

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