Mergers and acquisitions in the technology sector have returned to pre-crash levels — and gone even higher — with average deal-size up a staggering 81% on 2013, according to data from the Jordan Edmiston Group (JEGI).
The news will likely stoke fears that the ongoing tech boom is at its peak. So get ready for another round in the ongoing debate over whether this is a bubble that’s overdue to pop.
The total value of mergers and acquisitions in the media, information, marketing and technology sectors in 2014 was $US128.3 billion. That surpasses pre-crash levels of $US104.4 billion in 2007. In contrast, 2013 came out at just $US66.7 billion, almost half of 2014’s number. The 2014 number is skewed by the massive Facebook-Whatsapp acquisition.
The average deal got more expensive, too: In 2013 the average deal size was $US47.9 million; a year later, it’s $US86.7 million.
While deal value has almost doubled since 2013, the total number of deals increased by just 6% to 1,481 deals. The total number of deals is now 70% greater than it was in 2007, the pre-crash peak.
One significant contributor to that $US128.3 billion figure is Facebook’s acquisition of Whatsapp in October for almost $US20 billion. But even subtracting that $US19.7 billion, the total value of mergers and acquisitions in 2014 comes out at $US108.6 billion — still higher than pre-crash levels.
Here’s a look at deals by sector:
The B2B online media and technology sector saw particularly significant increases in deal value in 2014, totalling at $US6.5 billion from 65 transactions as compared to $US601 million for 57 deals in 2013. B2C online media and technology, meanwhile, rose “substantially” in 2014 to $US15 billion — “despite a 20% decline in volume.”
It’s a detail that’s likely to further stoke fears that the ongoing tech boom is a bubble that’s overdue to pop. While tech deals have not yet surpassed their 2000 dot-com crash peak, they are getting there, according to PwC. The two booms are different, however, in the sense that this time around most tech deals involve companies with revenue and cashflow — in the 1999/2000 crash a huge number of tech companies had no revenue at all.
Salaries in the technology industry have never been higher, with some companies rumoured to be offering up to $US4 million per engineer. Meanwhile, tech companies with little or no revenue streams like social network Ello and secret-sharing app Whisper are enjoying valuations in the millions or tens of millions of dollars.
In September 2014, well-respected investor Marc Andreesson of Andreesson Horowitz warned that the current climate of high valuations “WILL NOT LAST.” The investor warned against the high burn rates many companies maintain, saying that when the market turns (“and it will turn”), “many high burn rate [companies] will VAPORISE.”
For now, though, JEGI’s data suggests we haven’t peaked just yet. “With strong Q4 activity and an active M&A pipeline, 2015 is well positioned to surpass 2014 levels,” they tell us.
Here’s a graphic of the biggest deals last year: