Boston Corporate Finance Technology Update Q2 2007

M&A Storms Through Q2

Despite concerns surrounding a number of general macroeconomic indicators, strategic acquirors, fueled by strong corporate profits and aggressive private equity buyers, continued to propel the M&A market for another quarter.  With deal volume of $2.7 trillion to date, 2007 is on pace to be the most active M&A market in history.  While some experts are beginning to predict a cooling off period, we believe that there is still plenty of steam behind this wave of consolidation, particularly in the technology sector, which Boston Corporate Finance covers extensively.

The Boston Corporate Finance Technology Update:  Quarter in Review has expanded its coverage of the technology M&A market with additional sectors within software and services.  Our expanded coverage now includes IT Services & Business Process Outsourcing (BPO), Enterprise Application Software, Infrastructure Management Software and Systems Management Software.  In total, BCF tracked 322 M&A transactions in the second quarter, amassing $83.2 billion in aggregate deal value (based on 113 reported deal values).  Overall, technology M&A activity in the second quarter of 2007 mirrored the first quarter with a slight decrease in aggregate deal volume across the sectors we cover and a noticeable increase in deal value.  Much of the decrease in deal volume can be attributed to an increasing emphasis on integration following the acquisition spree of the past 18-24 months within the software and services sectors, while the substantial increase in deal value can be attributed to the flurry of large private equity backed transactions that were announced in the quarter.  While M&A activity in the middle market remains robust, we have noticed a scarcity of quality targets in certain market segments such as SAP consulting services and QA testing services.  These sectors have undergone significant consolidation over the past two years, leaving very few middle market players available for acquisition. 

The deep pockets of private equity stole the show in the second quarter as they grabbed headlines daily, making one multi-billion dollar acquisition after another.  In total, BCF observed 29 private equity backed transactions in the sectors we follow, totaling $55.5 billion.  Although flush with cash, industry pundits have been quietly comparing the similarities between the massive amounts of cheap debt that has been issued to fund these buy-outs and the subprime mortgage problem looming over the U.S. economy.  They fear that despite the “covenant lite” terms of the loans that have been issued by lenders, a credit crunch could have a detrimental impact on many of these highly leveraged companies.  However, given the current market conditions, the optimistic growth predictions in the technology sector and the need to deploy capital, we do not believe private equity players will slow down their aggressive acquisition pace in the second half of 2007.

One area that has largely been overlooked by the analyst community has been the increase in cross-border M&A transactions within the technology sector.  To date, cross-border M&A has accounted for almost 50% of all the M&A transactions that have occurred according to Thomson Financial.  In the technology sectors we follow, cross-border transactions were also on the rise in the second quarter amassing 82 M&A transactions with an aggregate reported deal value of $4.6 billion.  As the technology market continues to mature and consolidate, we believe cross-border M&A will continue to increase as buyers and sellers are no longer centralized in the U.S., but are located all over the world. 

In the following report we have chosen select transactions in the sectors we follow to illustrate new and ongoing trends we have witnessed in the current hyper-active M&A market within the technology sector.  The information compiled in our Technology Update reports relies on constant conversations with the players within the technology M&A market.  As always, we welcome and encourage feedback to assist us in our ability to provide you with the most complete information.

– Boston Corporate Finance

To download the entire Boston Corporate Finance Technology Update: Q2 2007

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