Nagging Concerns Over U.S. Economic Growth Temper Tech M&A Market

Published on: 1st Nov 2012

­A more subdued picture emerges from the latest survey of technology dealmakers conducted by law firm Morrison & Foerster and 451 Research. The percentage of technology insiders reporting an increase in M&A activity during the previous six months fell sharply compared to our inaugural survey in April.

Newly released data from the M&A Leaders Survey shows that the number of tech industry executives reporting a recent jump in deal-making -- 39% -- was nearly identical to those experiencing a decline -- 37%. That's a significant narrowing of the gap from April's survey, when more than twice as many respondents reported an uptick in M&A activity (51%) compared with those who were seeing a decline (23%).

Notably, most dealmakers cite uncertain prospects for the U.S. economy as the prime cause of their reluctance to execute transactions. More than 70% of the 300 respondents participating said doubts about the sustainability of economic growth in the U.S. have been a significant drag on M&A activity in 2012. Macroeconomic worries eclipsed even high target company valuations as dealmakers' top concern, reversing the order of "deal hindrances" from the previous survey. Other key deal roadblocks cited include the upcoming presidential election, the persistent European debt crisis, and anxiety over the so-called "fiscal cliff" facing the U.S. in January.

Yet despite the increased pessimism, there are clearly pockets of positive sentiment among technology's dealmaking community. For example, the 49% of respondents who say they expect acquisition activity to increase in the next six months is nearly three times the 17% who anticipate a drop-off in deals.

Robert Townsend, co-chair of Morrison & Foerster's Global M&A Practice, says the somewhat scattered sentiment is not unexpected. "The results illustrate some strong differences of opinion on the vibrancy of the deal market, and it's easy to come away thinking that many tech insiders have turned more cautious, especially in light of the pronounced turnabout in projected valuations from our last survey. It's worth noting, however, that in dealmaking -- as in baseball -- it sometimes takes just one or two wins to restore momentum. Given the large cash positions held by many major tech companies, along with continued rock-bottom interest rates and opportunities for companies to make some bold strategic moves, we understand the view held by many of those surveyed who expect to see a burst of deals heading into the first quarter of 2013."

Indeed, Mr. Townsend has seen that movement first hand. His M&A team at Morrison & Foerster is acting as lead counsel to SoftBank in its recently announced $20.1 billion investment in Sprint Nextel -- with a  reported enterprise value of around $43 billion, it is one of the biggest announced U.S. deals of the year. It is the largest overseas acquisition ever by a Japanese company, and the largest U.S. investment ever from Asia.

The next M&A Leaders Survey will be conducted and announced in the spring of 2013.

 

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