Rivals to the throne
One of the reasons for the dimming outlook for corporate acquirers has been the seemingly unstoppable rise of rival buyers from private equity (PE) firms. These newly assertive acquirers, which are currently sitting on record amounts of money, put up more prints last year than any year in history, according to the M&A KnowledgeBase. Corporate buyers, which have sometimes found themselves outbid in recent deals by financial acquirers, overwhelmingly expect buyout shops to be even more aggressive in 2018.
Underscoring just how powerful these PE firms have become, for the first time in the 11 editions of the 451 Research Tech Corporate Development Outlook Survey, respondents said financial buyers will offer more competition than strategic acquirers. (In the most recent survey, 64% of respondents indicated that PE would be more competitive in 2018, compared with 59% of respondents who said that about their fellow corporate buyers.)
Mind the gap
By historic standards, corporate acquirers had an unusually quiet 2017. That was particularly true for many of the large-cap giants that have typically set the tone in the overall tech M&A market. According to the M&A KnowledgeBase, the number of tech acquisitions by companies listed on the NYSE and Nasdaq dropped 5% in 2017 following an 11% year-over-year decline in 2016. Given that more than half of the respondents to the 451 Research Tech Corporate Development Outlook Survey work at public companies, including several of the big-name buyers, we asked what kept them out of the market last year. By a landslide, the main reason was valuations.
Looking ahead, the already difficult valuation negotiations will likely be even thornier in the coming year, according to our survey. Twice as many tech acquirers said they expect the valuation gap to widen than narrow in 2018 (47% vs. 24%). That's almost a direct reversal of the outlook from last year's 451 Research Tech Corporate Development Outlook Survey.
'The Art of the Deal'
Even though negotiations around pricing are looking difficult in 2018, corporate buyers mostly don't see the broader economic picture complicating the dealmaking process. That sentiment comes amid a generally favorable climate in the US of accelerating GDP growth and record high prices on Wall Street, among other positive indicators. (Note: 85% of survey respondents are based in the US.) In the survey, nearly four out of 10 respondents (38%) said the macro-economy didn't cause any difficulties in their M&A work, compared with one-quarter (26%) who said it did.
Contributing to the supportive overall climate for M&A, in the view of our survey respondents, are the policies of President Donald Trump, the coauthor of the 1987 business book, The Art of the Deal. By more than a two-to-one margin, corporate acquirers said President Trump's policies will help spur M&A in 2018. Specifically, 59% said the current administration will 'stimulate' dealmaking this year, compared with just 23% saying it will 'inhibit' dealmaking. That bullish outlook toward the White House around M&A is notable, given that Trump's overall popularity currently sits at historic lows.
And the Golden Tombstone goes to...
Finally, as we do every year, we asked corporate development executives to look at the handiwork of their peers around the tech industry and pick the most significant transaction announced in 2017. For the first time ever, we have a tie: Intel-Mobileye, Cisco-AppDynamics and Broadcom's unsolicited bid for Qualcomm. (Strictly speaking, the Broadcom-Qualcomm pairing is far from finalized, particularly when compared with both of the other top vote-getters. Intel and Cisco announced and closed their respective multibillion-dollar acquisitions in calendar year 2017.) Still, the unprecedented logjam at the top is somehow fitting for 2017, a year that saw corporate acquirers put forward a record 12 nominees for the deal of the year.
Top vote-getter for 'most significant tech transaction'
2017 Tie: Intel-Mobileye; Cisco-AppDynamics; Broadcom-Qualcomm
2016 Microsoft's acquisition of LinkedIn
2015 Dell's acquisition of EMC
2014 Facebook's acquisition of WhatsApp
2013 IBM's acquisition of SoftLayer
2012 VMware's acquisition of Nicira
2011 Google's acquisition of Motorola Mobility
2010 Intel's acquisition of McAfee
2009 Oracle's acquisition of Sun Microsystems
2008 Hewlett-Packard's acquisition of EDS
2007 Citrix's acquisition of XenSource
About the 451 Research Tech Corporate Development Outlook Survey: The 11th annual survey was open December 12-27, 2017, and drew 40 responses. More than half of the respondents (56%) work for publicly traded companies, with 21% employed at PE-backed vendors and another 8% at VC-backed firms. One-third of respondents work at software providers, with the two-thirds coming from a mix of a dozen other tech sectors.
Brenon Daly oversees the financial analysis of 451 Research's Market Insight and KnowledgeBase products, having covered more than a quarter-trillion dollars' worth of deal flow for both national publications and research firms.
Stefanie Williams joined 451 Research in April 2011. She is a member of the Multi-Tenant Datacenters team, covering North America and Australia. Her key research areas include state and local level incentives and compliance, including FedRAMP, HIPAA, ISO, PCI-DSS, SSAE 16, SOC 2 & 3, and Uptime Institute M&O and Tier Certifications.
Keith Dawson is a principal analyst in 451 Research's Customer Experience & Commerce practice, primarily covering marketing technology. Keith has been covering the intersection of communications and enterprise software for 25 years, mainly looking at how to influence and optimize the customer experience.