Wall Street Beat: Tech M&A flattens as economic uncertainty reigns, report says

Tech companies look for smaller IP deals as they position themselves for the next wave of computing

The number and value of technology mergers and acquisitions is flattening out, mainly as a result of economic uncertainty, according to a PricewaterhouseCoopers report.

Fifty-nine tech sector M&A deals closed in the third quarter this year in the U.S., compared to 58 deals closed in the previous quarter, according to PwC's U.S. technology M&A Insights Q3 2012 report, released Friday. Deal activity in the third quarter of 2011 totaled 78 transactions with a total value of US$26.6 billion. While quarterly deal values have been at or exceeded $25 billion each quarter during the past two years, the total deal value for the third quarter this year declined to $20.5 billion, mainly as the result of fewer large acquisitions, the report said.

The tech M&A scene most likely won't look that much different in the fourth quarter as economic uncertainty prevails, according to PwC.

"The number-one question is the global macro-economy," said Rob Fisher, PwC's U.S. technology industry transaction services leader.

There were some positive trends in the U.S. economy in the third quarter and the beginning of the fourth quarter, Fisher noted. For example, tech stocks rose while consumer confidence and the housing market improved. However, employment data remained weak, and the so-called fiscal cliff -- a set of budget cuts and tax increases set to go into effect if political leaders are unable to reach a fiscal compromise by the end of the year -- has raised concerns about the possibility of another recession.

"In this sort of environment, acquirers tend to become conservative and focus on internal operations and efficient delivery of core offerings," Fisher said.

Large deals are not drying up completely, however. The small number of $1 billion corporate deals announced by tech companies in the third quarter included Micron's $2.5 billion offer to acquire DRAM maker Elpida, and IBM's $1.3 billion deal for talent management company Kenexa.

Some of the larger tech acquisitions announced in the third quarter were by private equity companies, which are more willing than large tech companies to look at stability, rather than high growth, Fisher noted. Large private equity deals included the Carlyle Group's $3.3 billion acquisition of Getty Images and Blackstone's $2.0 billion deal for Vivint, a provider of technology-based home automation and security systems.

If economic uncertainty continues, large tech companies could look to divest products that are deemed not to be core to their business, with private equity companies swooping in to scoop up business units being sold by the IT giants, Fisher noted. Meanwhile, tech companies are likely to invest in smaller IP deals as they look to position themselves in the next wave of innovative technologies, the PwC report said.

"The biggest wave of disruptive technologies on the enterprise side is cloud computing services," Fisher said. "On the consumer side it's a little different, focusing on the convergence of computing, entertainment and communications on single mobile devices."

Meanwhile, economic uncertainty hit the markets this week. Though markets including the tech-heavy Nasdaq closed up for the day Friday, the major indexes and exchanges had their worst week since June. The Nasdaq computer stock index was up by 10.46 points for the day Friday, at 1518.91. It began the week, however, at 1575.16.

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