‘Non-tech’ backers propping up tech M&A, says consultancy

Traditional types of companies and private equity firms are acquiring, and investing in, innovative technology assets, reports indicate

M&As in the technology sector are increasingly being supported by investment from outside the industry, according to specialist consultancy Hampleton Partners.

In a series of new reports covering 11 key technology segments – such as enterprise software, e-commerce and IT services – the firm notes that, overall, technology M&A cooled down in the first half of 2017.

“However,” says Hampleton principal partner Miro Parizek, “it is critical to be more nuanced and to look deeper into specific sectors and the related data when assessing deal activity and planning strategy.”

Parizek notes: “M&A and funding is accelerating in select sectors, as more ‘non-technology’, or traditional, companies and private equity firms move to acquire and invest in technology and innovation.”

As a result, he points out: “Artificial intelligence [AI], augmented reality/virtual reality [AR/VR] and cybersecurity are three of the most promising sectors for technology M&A right now.”

Taking those sectors in turn, Hampleton found that:

1. In AI Acquisitions have sped up dramatically, with deal volume increasing by 179% from 2016 to 2017. Total, global AI-related M&A exceeded 100 transactions in the 24 months up to June 2017, in concert with growing media attention devoted to the sector.
2. In AR/VR Investment has shot up in recent years, with the majority of related M&A activity occurring in the US. In the past 12 months, almost 80% of the sector’s deals – together worth more than $620m – were related to hardware development, showing that innovators are becoming ever more focused on end users’ experiences.
3. In cybersecurity Headline-grabbing data thefts and breaches at high-profile government and corporate institutions have underpinned a spending surge in the sector, driving significant M&A activity. Deal volumes are high, with 80 security-related acquisitions tracked in H1 2017. Valuations are at healthy levels, too, with enterprise-value-to-sales (EV/S) ratios clocking in at 4.7x on disclosed transactions for the period 2015 through H1 2017.

Another impressive performer was the Internet of Things (IoT) – in other words, web-connected devices – with Intel, Verizon and ARM comprising the sector’s Top Three acquirers.

In total, 198 buyers were active in the IoT sector from 2015 through H1 2017, snapping up a total of 239 assets. While median revenues paid on disclosed transactions came in at 3.5x during that period, some deals were inked with EV/S ratios as high as 21x.

Enterprise software also produced sterling results, with global M&A volume increasing by 12% in H1 2017, compared to the previous half-year period, with earnings based valuation metrics (enterprise value/EBITDA) remaining stable at 14.5x.

“Political uncertainty in Britain,” Hampleton notes, “had little impact on deal flow in enterprise software, as the number of UK deals grew by a modest 5% from the previous half year and accounted for 35% of all deals in Europe.”

Find Hampleton’s 11 technology M&A reports here.