Goldman Sachs tech bankers say we're at dotcom-level dealmaking -- here's where it's coming from

Goldman Sachs tech bankers are having a record year for dealmaking — and they don’t expect it to stop anytime soon.

“When we look ahead, it feels like, barring some piece of macro volatility, it’s going to continue to be a constructive environment for tech M&A,” Sam Britton, head of technology, media, and telecom mergers and acquisitions, recently told Business Insider.

“It really feels like to me it’s an extension of what we were seeing last year, just busier and more pronounced.”

From Intelsat’s $US13 billion deal for OneWeb to Cisco’s $US3.7 billion deal for AppDynamics, the firm’s tech, media, and telecom mergers and acquisitions team had its busiest start to the year in terms of number of deals since 2000, announcing 18 deals in the first two months of the year valued at nearly $US30 billion.

Behind it all is an ongoing drive for technology among industrial companies and other non-tech companies wanting to get exposure, especially to software. This started 18 months to two years ago, but has grown at an exponential rate for the last several quarters, Ryan Limaye, cohead of global technology banking, told Business Insider.

Ryan LimayeGoldman SachsRyan Limaye.

“While the broader economy is growing, tech has been the greatest growth area in the economy for a long period of time,” he said. “As a result, many companies that are not labelled as tech companies want more tech in their portfolio.”

Dialogue with non-tech companies, he said, has gone “through the roof.”

In fact, Limaye said the the number of non-tech companies looking for tech assets reminds him of 1998, 1999, and 2000 — that is, the hyper-active years leading up to the 2001 bursting of the dot-com bubble.

He said one important gauge of the market is the number of industrial or non-tech companies making venture investments. General Electric, IBM, and even Campbell Soup have their own venture capital funds.

Eye on enterprise

Much of the activity so far this year has been in the enterprise (or business-focused technology) and software sectors, a theme that started last year and has continued to pick up.

“Clients are thinking very big, very bold, very aggressively,” this year, Limaye said. “They are very interested in doing things — that generally means M&A and, to a lesser degree, financing,” he said.

One major area of interest within enterprise, which Limaye defines loosely as “not consumer” technology, is software-as-a-service, or SaaS. Last year saw an uptick in SaaS deals, including Oracle’s $US9.3 billion deal for NetSuite, Samsung’s $US8 billion deal for Harman, and Symantec’s $US4.7 billion deal for Blue Coat. Limaye expects that trend to continue.

Acre Venture Partners - Campbell's SoupAcre Venture PartnersCampbell Soup Company’s venture capital arm is called Acre Venture Partners.

Other sectors include artificial intelligence and machine learning. Interest in those types of companies is very high, Limaye said, and there aren’t very many assets to go around.

And then there is the “Internet of Things,” meaning technologies that connect physical devices, like vehicles or warehouse equipment, via the internet.

“It appeals massively to non-traditional tech,” Limaye said. Here, too, there is a shortage of assets. That means that for the assets that do get bought, higher prices are being paid. And incumbent companies are finding more ways of getting exposure to them, whether through acqui-hiring or bulk recruiting.

Major cloud providers like Amazon Web Services, Microsoft Azure, and Google Cloud will also continue to roll out more services, Limaye said. As each one makes new developments, it increases the pressure on competitors to keep up.

‘Like night and day’

In terms of the broader macro backdrop for tech M&A going forward, it helps that many recent deals have gone so smoothly.

“I do think the macro, recent self-reinforcing data points mean the environment is good,” said Britton.

Sam BrittonGoldman SachsSam Britton.

One caution, however: With talk of tax reform and cash repatriation on the horizon under President Trump’s administration, some buyers could wait before deciding to spend money on deals.

Cash repatriation would still be a net positive for the tech M&A market, Britton said, but it could mean that things get put on hold until there is more clarity. So far, that hasn’t been the case, but it’s something worth looking out for.

Still, many historically acquisitive tech companies have not made any big deals recently and could therefore have plans in the works now. Of the big five tech companies — Google, Apple, Facebook, Amazon and Microsoft — only Microsoft did a large deal last year.

Limaye said that Goldman’s annual technology conference, which took place in February, hosted more than 1,000 people this year, including some 800 investors and several hundred companies. At one point during the conference he showed up for a lunch only to find out it had run out of food.

“The contrast from this time last year is like night and day,” Limaye said.

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