Technology M&A gets white hot in 2018
Dealmakers across all industries are looking to secure US tech assets in order to keep up with the technological changes disrupting their industries
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It has been a busy period for the tech sector, with 483 deals in the first half of 2018. And value rose to US$67.4 billion in H1, a 59 percent increase compared to H1 2017.
It has become a necessity for companies to either build or buy tech capabilities to stay relevant, regardless of their industry. If companies do not have the ability or experience to build a tech solution in-house—and most non-tech companies do not—then the M&A route may be their best option.
Top tech deals
1: Microchip Technology Inc. bought Microsemi Corporation for US$9.8 billion
2: Microsoft Corporation agreed to buy GitHub Inc. for US$7.5 billion
3: Saleforce.com Inc. bought MuleSoft Inc. for US$5.9 billion
Healthcare has experienced a high level of disruption from tech company challengers. Personally connected devices can help monitor personal data, which tech-enabled healthcare companies can aggregate and mine to improve product distribution and even clinical determinations. This leaves the healthcare industry ripe for further digital disruption.
The value of 483 deals targeting the US tech sector in H1 2018
Pure play here to stay
M&A between tech firms has also remained strong, as firms look to consolidate in order to cut costs and stay ahead of competition. Salesforce, for example, has agreed to pay US$5.9 billion for MuleSoft, a platform that allows clients to integrate data from the cloud and in-house servers, in what will be its biggest deal ever conducted. And Microsoft agreed to pay US$7.5 billion for code-sharing platform GitHub.
Chinese dealmaking into the US tech sector has been dampened by heightened scrutiny from CFIUS. The value of cross-border TMT deals from China into the US dropped from US$11.6 billion in 2016 to just US$2.25 billion last year.
It may be no coincidence that Chinese firms are developing more technological expertise in-country as well as increasingly targeting Asian neighbors Japan, Korea and Taiwan for their tech assets.
However, the announcement that CFIUS had approved investment company China Oceanwide Holding's purchase of insurer Genworth Financial in June perhaps signals a softening of the committee's stance. The deal was first announced in 2016 and both companies had to agree to take special measures to protect customer data in order to get approval. While this may be a one-off, it does show that cross-border deals from China deals can get across the line.
Percentage increase in tech M&A value compared to H1 2017
Now that the General Data Protection Regulation (GDPR) has come into effect in Europe, there is increased talk of similar regulations being proposed in the US, even for companies without a European connection. This may result in some tech giants becoming more internally focused on compliance, rather than outwardly focused on growth.
Yet, despite potential headwinds, corporate demand for tech M&A is expected to rise. As many potential tech acquirers are now loaded with cash, continued improvement in market confidence could drive deal sizes skyward in future quarters.
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© 2018 White & Case LLP