Tech M&A Market: Too Hot or Just Right?

The M&A markets for software and technology are hot right now, hotter than we’ve seen them since the late 1990s.  Johnny Carson once described the L.A. summer heat by saying it was so hot that he “saw a sparrow pick up his worm with a potholder.”  Fortunately for us at Corum, it isn’t the heat that’s the problem – it’s keeping up with the accelerating pace of activity.

As a whole, the M&A market for software and technology has shown remarkable strength in 2013, especially during the second half of this year.  This has been true for technology firms in the United States, and even more so for international firms.   Activity and momentum have been strong and accelerating, not only in terms of sellers looking for a transaction, but for strategic acquirers and private equity firms seeking to expand their technology portfolios as well.

The markets in Q4 are reminiscent of the heady days leading up to the infamous dot-com bubble in 2000, but should we worry that an accelerating pace in M&A is a prelude to another bubble?

Ernst & Young just released their quarterly analysis for worldwide technology M&A, and included a few surprises.  In Q3 2013, total deal value topped $72B worldwide, up more than double from its ‘normal’ run rate of about $30B per quarter.  Much of the heat driving this acceleration in M&A stems from tectonic shifts and disruptive technologies, including the move to thin client SaaS delivery, rapidly evolving mobile devices, and ever-smarter ‘big data’ and natural memory analytics.

The EY report does not suggest a bubble is upon us.  To the contrary, they point to a somewhat average total number of deals in Q3 (700), a fairly positive ‘capital confidence barometer’ with 77% of executives believing deal volume will increase, and 58% who believe their valuations will increase further in the coming 12 months.

Another tech bubble?  Possible but unlikely, at least for now.  If you’re considering the sale of your company, now is the perfect time to strike.  A typical deal takes 9-12 months to close, so transactions that launch today should be well timed for a maximum valuation just as the market peaks sometime next year.

Posted by , on 18 November 2013
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