Smart mobility is the top trend driving technology mergers and acquisitions, but the gap between buyers and sellers is widening, and economic uncertainty is keeping many potential deals on ice.
“While most of the ingredients necessary for a deal recovery remain in place – plentiful cash reserves, adequate credit availability and transformative technologies – one element remains elusive: economic confidence,” writes Joe Steger, who leads Ernst & Young’s transaction advisory services for the technology industry.
Ernst & Young’s global technology M&A update for the third quarter found that the aggregate value of technology deals fell 52% year-on-year to $28.2 billion. Survey respondents said that the gap is widening between the value that sellers want and the consideration buyers are willing to pay. Almost half the respondents said they expect M&A valuations to decline during 2013, and only 28% thought valuations would rise.
But mobile is an M&A bright spot, and Steger says that along with cloud computing, social networking and big data analytics, smart mobility will continue to drive strategic transactions. As technology changes rapidly, companies acquire technologies that they need but cannot create. This is true across the ecosystem, from software to semiconductor design to infrastrucutre. “On the infrastructure side, it takes enormous and unpredictable time to replicate the assets,” says Richard Lukaj, senior managing director, at Bank Street Group “It can be more effective and valuable to acquire [the assets needed for expansion].”
Ernst & Young says that deals involving cloud computing, software as a service (SaaS) and mobile payment technologies surged in the third quarter. In the mobile payments space, a handful of large players are emerging and many smaller companies are selling out. EBay’s PayPal has been one of the more aggressive acquirors in this space. During the third quarter PayPal bought card.io, a startup with an app that reads credit cards by taking a picture of the card and entering the card’s data.
“In general when you think about payments it is large in terms of market size and 100% ripe for disruption,” says Rajeev Chand, managing director at Rutberg & Company, a boutique investment bank which tracks deals in mobile and wireless. “The point of payment infrastructure is outdated,” he says, referring to cash registers and credit card readers that are starting to be replaced by contactless readers with NFC technology. Chand also believes consumers are ready for mobile payments. “If you talk to your sister or your cousin, they will look at their phone and say ‘Why can’t I pay for things with this?’ It’s the next thing people want to do with their smartphones.”
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