M&A in the Technology sector Market leaders to set the stage
Leading chipmaker Broadcom launch a bid on wireless chipmaker Qualcomm for a staggering USD 100 bn, on 6 November 2017. This would be the largest technology deal in history. The merger would lead to the third largest global semiconductor manufacturer (after Intel and Samsung) and power house in the mobile chipset market with nearly 75% market share. The combined entity would also have a strong foothold in the Internet of Things (IoT) space with a healthy presence in the connected devices segment. Qualcomm has not officially accepted the bid for now and is likely to fight the offer on the grounds of undervaluation. However, we believe such announcement has set the stage for 2018, a likely year for large M&A deals in the technology sector.
In our view, industry consolidation and integration of value chain are not the only key focus areas for M&A deals in the technology sector today. Exposure to niche technologies, such as Social Media, IoT, Big Data and Autonomous Driving, is also key. In most cases the acquirer does not hold it ahead of the acquisition. Therefore the acquisition enhances existing service offering or build a presence in the consumer segment. As an example, social media companies with a sizeable user base have been recently acquired by leading players (e.g. WhatsApp by Facebook and LinkedIn by Microsoft). This phenomenon extends beyond listed companies. For instance, Cisco acquired AppDynamics, an application and business performance monitoring company, for USD 3.7 bn. Market leaders also strengthened positioning in emerging technologies such as autonomous driving and artificial intelligence through acquisitions (e.g Mobileye and Nervana by Intel; Harman by Samsung). We believe such trend will be supported in the coming years.
M&A activity in the sector has been relatively slow compared to previous years. The total number of deals (till 9 November) fell to 5 333 (USD 163.8 bn) from 5 459 (USD 339.6 bn) in 2016. However, the slowdown may be short-lived given the large amounts of cash available to the main technology players (USD 435.1 bn in net cash available with the companies focused in our basket of stocks). On this basis, we introduce a list of the leading players that would lead the way for further M&A deals in the sector given their size, strong balance sheet and dominant presence in their areas of operation.
Data & recommendations as of 13 November, 2017 close
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