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Wall Street Beat: After Facebook buy of WhatsApp, tech M&A set for strong year

Tech mergers and acquisition activity soared in the second half of 2013, PricewaterhouseCoopers says

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Facebook's acquisition of WhatsApp may end up being just one milestone in a strong year for tech mergers and acquisitions.

On the back of a phenomenal 2013 in the equities markets, a strong IPO market and heading into a year where IT spending is expected to rise globally, technology M&A is poised for a rebound.

While 2013 started off slow for tech M&A, the year ended on a strong note.

"2013 was a tale of two halves," said Rob Fisher, U.S. technology deals leader for PricewaterhouseCoopers (PwC). "As a year it was disappointing but we had an encouraging second half."

Of the US$100 billion in tech M&A deal value in 2013, $75 billion happened in the second half of the year, Fisher noted.

The start of 2013 was filled with economic uncertainty, and the number of tech M&A deals in the first half of the year fell below 2009 recession levels, according to the PwC 2014 Technology M&A Insights report, released Thursday. Though the total number of deals during the year fell 18 percent below 2012, M&A activity doubled in the latter half of 2013, PwC said.

This year has started out strong. In addition to Facebook's announcement that it would acquire WhatsApp in a deal valued at a total of $19 billion, last month Lenovo announced two purchases of more than $1 billion.

Lenovo said it would buy Motorola Mobility from Google for $2.9 billion, and also announced a deal to spend $2.3 billion to buy IBM's x86 server business.

Lenovo rival Hewlett-Packard is also eying acquisition targets. On Thursday during a conference call to discuss HP's quarterly financial results, CEO Meg Whitman said "As this market changes very dramatically, you can see we may need acquisitions in security, big data, mobility and cloud."

U.S. exchanges set records in 2013, with the tech-heavy Nasdaq rising 38.3 percent. The uptick in tech shares fueled the tech IPO market. In 2013, there were 51 tech IPOs, compared to 39 in 2012, according to PwC. Technology IPOs were a main driver in the market, representing about 16 percent of IPO value and 21 percent of total IPO volume in terms of numbers of deal, PwC noted.

The only sectors that outpaced tech in the IPO market in the last 12 months in terms of deal volume were health care and financials, according to IPOScoop.com.

Soaring equities and a strong IPO market don't automatically encourage all M&A activity, Fisher said. In a strong stock market, valuations for potential M&A targets may be high enough to cause some hesitation on the part of acquiring companies, he pointed out.

But the rise in tech company share prices and strong IPO activity point to an underlying confidence that can encourage M&A, Fisher said.

In addition, global spending on technology will increase year-over-year by 6.2 percent in U.S. dollars, to $2.22 trillion in 2014, according to a recent Forrester forecast. That compares with a worldwide IT market growth of a mere 1.6 percent in 2013.

The top 25 tech companies have nearly $350 billion in cash and securities in their coffers, so are well provisioned to go on a shopping spree, PwC pointed out.

Hot sectors for tech M&A this year are likely to be the social networking and media and mobile markets, Fisher said. For the enterprise sector, cloud technology in particular is likely to be central to a number of deals, he said.

Private equity investment is also likely to fuel M&A this year, Fisher noted. Though the number of M&A deals in 2013 declined by double digits year over year, the total value of M&A fell by only 3 percent. That was mainly due to Dell's move to go private, a $24.9 billion transaction led by Silver Lake Partners, PwC pointed. That was tech's largest transaction since 2007.

Tech companies that have gone public over the last year or so may comprise another group that could contribute to M&A activity this year, Fisher said. Aside from Facebook, this group of companies has not been heard from as much as the older, incumbent players. High valuations for some of these companies, however, could help give them leverage to grow via acquisitions.



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