Wall Street Beat: Uncertainty dampens tech M&A, PwC says

Though cloud and software technology put pressure on companies to acquire IP, merger and acquisition activity may not increase this year

Economic uncertainty tamped down the number and value of technology mergers and acquisitions in 2012 and this year may not look much different, according to PricewaterhouseCoopers (PwC).

Despite some big deals that closed in 2012 -- like Google's US$12.9 billion acquisition of Motorola Mobility and Cisco's $5.0 billion takeover of digital video technology company NDS Group -- M&A activity declined, according to a PwC report this week.

The uncertain economic climate curbed spending by both technology consumers and IT company acquirers, as overall IT spending growth ended up at an "anemic" 1.2 percent year-over-year increase for 2012, PwC said in its report, "PwC's US Technology M&A Insights."

Technology deal value for 2012 totalled $103.4 billion, a drop of 17 percent from 2011, according to PwC. The number of deals closed decreased 19 percent, as the year ended with 249 completed transactions, compared to 308 deals in 2011.

This year, the rush to cloud technology and the quickly evolving software market, in particular, will put competitive pressure on IT companies to make acquisitions, PwC said. In addition, tech companies are cash rich, so they have money to make acquisitions they feel are necessary. The top 25 U.S. tech companies had a total of $330 billion in cash by the end of 2012, PwC noted.

"The pressure of disruptive innovation has technology companies constantly seeking the next competitive differentiator, which requires investing in new talent, new technologies, R&D and M&A as a means to all three," wrote Rob Fisher, PwC's U.S. technology deals leader.

With hardware sales sagging, deals are likely to revolve around cloud-oriented and mobile technology, analytics and social-network-enabling software, PwC said.

Data from market researchers reinforces the idea that software will lead growth. Software, at $542 billion, will remain the largest category of global IT purchases in 2013, increasing 4.4 percent in dollar terms from 2012, according to Forrester Research. Computer hardware, at $416 billion, is the second-largest category, but will experience just 2.1 percent growth this year, Forrester said, after 1.2 percent growth in 2012.

On the whole, though, IT spending looks like it will be healthier this year. Global IT purchases will increase by 3.3 percent in 2013, in terms of U.S. dollars, to US$2.1 trillion, according to Forrester's 2013 forecast.

Nevertheless, economic uncertainty is not disappearing and will likely continue to make deals harder to value, placing at least one stumbling block in the way of M&A during the year.

"In the face of macroeconomic uncertainty, technology companies tend to conserve cash and exhibit less tolerance for earnings volatility," Fisher said in an email response to questions about the report. "These responses either dampen companies' appetites for acquisitions or requires them to spend far more time evaluating potential deals to avoid earnings dilution; thus reducing M&A activity."

Last year a large degree of uncertainty was caused by the U.S. presidential election. "With candidates presenting starkly different visions for American economic policy, technology companies spent ten months of the year attempting to divine which of the many pundits might be right in their predictions of the outcome and its knock-on effects to the economy," PwC said.

The fiscal cliff also caused anxiety that dampened spending. The fiscal cliff, a series of government spending cuts and tax hikes set to kick in by Jan. 1 if a budget compromise was not reached, was averted by an 11th-hour compromise on taxes. The sovereign debt crisis in Europe, with Greece and Spain debt levels skyrocketing, caused concerns that the euro zone would not survive, though ultimately the European Central bank stepped in with financing plans that quelled anxiety.

But the fiscal cliff compromise in the U.S. did not include a deal on spending, and Friday the so-called "sequestration" of government funds -- amounting to $85 billion in automatic across-the-board spending cuts -- started to kick in. In addition, recession is forecast for several E.U. countries this year.

The U.S. Department of Commerce on Thursday reported that gross domestic production in the fourth quarter increased at an annual rate of 0.1 percent -- better than the 0.1 percent decrease forecast by some analysts but nowhere near the rate needed to bring unemployment down significantly.

Meanwhile, the Nasdaq Computer Index edged slightly higher Friday in afternoon trading as major U.S. exchanges and indices rose. On the Nasdaq, Apple shares declined by $8.20 to $433.20, but that drop was offset by gains in shares of Oracle, Microsoft, Google, Intel and Dell. On the New York Stock Exchange, Hewlett-Packard and IBM shares were trading up for the day.

The Dow Jones Industrial Average, the Standard and Poor's 500 index and the Nasdaq all closed out February higher for the month. However, markets have had a roller-coaster week as the March 1 deadline neared for the start of the government budget sequestration. Economic uncertainty is unlikely to end soon.

"As companies continue to focus on core businesses, digest strategic acquisitions of the last decade, and work to scale these already acquired offerings," the PwC report concludes, "we may see a similarly subdued environment in 2013."

Join the PC World newsletter!

Error: Please check your email address.

Tags business issuesAppleForrester ResearchMergers and acquisitionsPricewaterhouseCoopers

Our Back to Business guide highlights the best products for you to boost your productivity at home, on the road, at the office, or in the classroom.

Keep up with the latest tech news, reviews and previews by subscribing to the Good Gear Guide newsletter.

Marc Ferranti

IDG News Service
Show Comments

Most Popular Reviews

Latest News Articles


PCW Evaluation Team

Azadeh Williams

HP OfficeJet Pro 8730

A smarter way to print for busy small business owners, combining speedy printing with scanning and copying, making it easier to produce high quality documents and images at a touch of a button.

Andrew Grant

HP OfficeJet Pro 8730

I've had a multifunction printer in the office going on 10 years now. It was a neat bit of kit back in the day -- print, copy, scan, fax -- when printing over WiFi felt a bit like magic. It’s seen better days though and an upgrade’s well overdue. This HP OfficeJet Pro 8730 looks like it ticks all the same boxes: print, copy, scan, and fax. (Really? Does anyone fax anything any more? I guess it's good to know the facility’s there, just in case.) Printing over WiFi is more-or- less standard these days.

Ed Dawson

HP OfficeJet Pro 8730

As a freelance writer who is always on the go, I like my technology to be both efficient and effective so I can do my job well. The HP OfficeJet Pro 8730 Inkjet Printer ticks all the boxes in terms of form factor, performance and user interface.

Michael Hargreaves

Windows 10 for Business / Dell XPS 13

I’d happily recommend this touchscreen laptop and Windows 10 as a great way to get serious work done at a desk or on the road.

Aysha Strobbe

Windows 10 / HP Spectre x360

Ultimately, I think the Windows 10 environment is excellent for me as it caters for so many different uses. The inclusion of the Xbox app is also great for when you need some downtime too!

Mark Escubio

Windows 10 / Lenovo Yoga 910

For me, the Xbox Play Anywhere is a great new feature as it allows you to play your current Xbox games with higher resolutions and better graphics without forking out extra cash for another copy. Although available titles are still scarce, but I’m sure it will grow in time.

Featured Content

Latest Jobs

Don’t have an account? Sign up here

Don't have an account? Sign up now

Forgot password?