Technology M&A
Technology Reports

Technology Report 1H 2021

THE BOILING FROG: BIOMETRIC DATA COLLECTION AND ANALYSIS IS ALREADY HERE

If it feels like Rockwell’s 1984 pop hit “(I Always Feel Like) Somebody’s Watching Me” applies to your own life, you’re not wrong. Facial recognition technology, data scoops, and digital recognition systems have been out there for years. A 2016 Georgetown Law report estimated 117 million Americans are logged in law enforcement facial recognition databases through largely unregulated practices. A 2021 government report found 42 federal agencies – including the Transportation Security Administration, U.S. Customs and Immigration, the Secret Service, U.S. Marshals, and the FBI – use facial recognition technology in response to everything from criminal investigations to incidents of civil unrest to COVID-19 threats.

Biometric information – your face, your eye movements, your voice, your movements … anything that makes you, you – can be processed through a variety of A.I. applications and algorithms for any number of uses, law enforcement, public safety, self-driving cars or the development of “stickier” advertisements.

Some companies scrape facial images from social media sites and provide that data to law enforcement agencies by subscription (hundreds of them), and there are sites that gather up images from across the web and allow anyone to access them (for a fee). Anyone can track anyone, cops, an abusive ex-partner, a potential employer, identity thieves, foreign entities. Images drawn from security cameras, social media sites, corporate sites, anywhere, can be paired with machine learning and artificial intelligence algorithms…

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Technology Report 2H 2020

RISE OF TECH, SPACs, AND REGULATION

Tech led the S&P 500’s 16% rise in 2020 – during the COVID-19 pandemic, no less. FAANG stocks (Facebook, Amazon, Apple, Netflix, and Alphabet’s Google) were major drivers – making up about 20% of the index – proving tech’s resilience to many external factors. When the world locked down, Amazon broke out, fueled by demand for e-commerce delivery. Amazon stock was up about 73% for the year.

Add to that Tesla’s entry into the S&P, and the technology industry flexed its muscles in the markets.

As 2020 came to an end, we’ve been closely watching two emerging factors in the technology industry, the rise of SPACs and the risk of more federal regulation. Both hold the potential to impact future mergers and acquisitions in the space.

In a bit of a surprise, as 2020 became the year of the stay-at-home and work-from-home orders, streaming platforms boomed. Streaming service platforms – video and music – were valued at $26 billion in 2019 but are expected to hit $47 billion by 2027. In addition to stalwarts Amazon Prime, Hulu, Netflix, and others, 2020 saw the arrival of HBO Max, NBC’s Peacock, and Discovery+, along with the 2019 entry of Disney+, all of which vied for eyeballs while we were locked at home.

Businesses and schools also leaned into tech during the pandemic. Zoom burst into public consciousness with video meetings popular for remote learning, friendly online “happy hours,” and corporate conference calls. The service reported a spike in daily users from 10 million in December 2019 to 200 million just four months later as the reality of the pandemic set in. By May, Zoom made its first-ever acquisition, snapping up security startup Keybase to combat security questions. And by June there was speculation over who would try to acquire Zoom…

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TECH 2020: WHEN WE CAN’T GO OUT, WE GO ONLINE

If there’s a sector at the center of our new COVID-19 reality, it’s technology. Social distancing and lockdowns met online payments, video conferencing, working from home, and distance learning. From end to end, technology is the new office furniture and schoolhouse. And while necessity forces innovation today, the pandemic is perhaps changing how we will conduct our daily lives even after the world returns to whatever becomes normal.

Venture capital and M&A activity may have slowed across some sectors during this economic disruption, but we continued to see deals done in the tech sector at volumes consistent with before the pandemic. And moving forward, we expect even investors who may have steered away from what could have been perceived as mature verticals to show renewed interest as we uncover new consumer demands creating perhaps some unanticipated opportunities.

FINANCIAL TECHNOLOGY: DIGITAL DOLLARS IN A COVID WORLD

One key sector we believe may benefit is financial technology (fintech). The pandemic has accelerated demand for fintech across virtually every platform. Online payments, financial advising, insurance, and banking will see new pressures to advance and improve. Consumers who become used to e-commerce today may never return to brick and mortar retail and merchants are turning to B2B online platforms for procurement…

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Thumb-2H19-Technology

THE INTERNET OF TRANSPORTATION: TECH MEETS THE ROAD

When thinking about technology and business opportunities in the tech sector, it’s easy to imagine the next breakout from Silicon Valley or to picture Bill Hewlett and David Packard tinkering in their professor’s garage. But in reality, tech today impacts everyday life – and presents opportunities for business growth and innovation – all around us in the cities where we live and commute.

Increasingly overwhelmed cities, states and countries, mired in traffic congestion, are turning to technology. The booming field of Intelligent Transportation Systems (also called Intelligent Traffic Systems), is key to improving the efficient movement of people and goods around the world.

INTELLIGENT TRANSPORTATION SYSTEMS (ITS)

The ITS sector touches everything drivers depend on as they navigate increasingly crowded roads. Think about the systems that coordinate traffic signals to combat backups and stop-and-go driving. Consider road sensors that gauge and report traffic speeds and identify congestion in real time. Traffic cameras alert emergency services to accidents while sonic sensors change traffic signals to allow rescue vehicles to speed to the scene. Look at Variable Message Signage (VMS) that warns of traffic hazards or guides motorists out of evacuation areas. ITS identifies malfunctioning traffic signals automatically, resets out-of-sync intersections, and has revolutionized toll road management. As technology evolves, traffic engineers can ping individual cell phones inside cars and use artificial intelligence to adjust signal timing for driver behaviors and react to emerging traffic patterns…

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Technology Report - 1H 2019

Q&A WITH AN INDUSTRY EXPERT

In this edition of SDR’s Technology report, we interviewed the Co-Founder and Managing Partner of NuView Analytics (and former investment banker), Anthony Wong. At NuView, Anthony and his team leverage the latest technology tools to help middle-market companies create actionable insights from their data. SDR has partnered with NuView to enhance the marketing of its clients to investors in cases where the client has significant untapped data that can demonstrate key attributes, such as market penetration, performance during business cycles, reoccurring revenue patterns, etc.

Q: How are you most often seeing smart middle-market companies leverage their data to increase Enterprise Value in the eyes of potential investors/acquirers?

A: Where we see companies find the most success in creating tangible enterprise value is by leveraging their data to create efficiencies in their operations that result in increased EBITDA (i.e. decreasing costs or increasing productivity). Of course, smart middle-market companies have access to timely insights beyond their monthly financial results that allow them to identify the inefficiencies in their businesses.

We usually see the marketing and sales departments rise to the top of the list due to the large amounts of data those departments collect. Whether it’s identifying marketing channels that contribute to low conversion rates or cultivating actionable leads that are most likely to close for sales, many data-driven insights can create real leverage points for sales and marketing. For technology and software companies where retention is a key driver of enterprise value, we find the most impactful data solutions are customer churn models that utilize historical data from customers’ tenure to predict future churn for cohorts.

Q: For middle-market companies to win with data-driven insights, do they need to be at the forefront of utilizing AI or machine learning?

A: AI and machine learning are the buzzwords of the day in data, but the truth is they are beyond what is necessary to make an immediate impact on businesses. All companies, not just middle-market companies, can see huge wins through data-driven insights by focusing on creating a more data-informed business. Once you can see the data, and it gets insightfully presented to the end-user, middle-market companies can then make decisions and have their teams implement the insights rather than a computer. For example, it’s not necessary to create an AI robot to call all your top sales leads, but it is necessary to know which sales leads are most likely to close so your team can focus its attention on them…

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Technology Report - 2H 2018

2H 2018 INDUSTRY UPDATE

LANDING IN FLYOVER COUNTRY

Bloomberg’s Brain Drain Index (BDI) and Brain Concentration Index (BCI) track the outflow and inflow of highly trained workers by geographic region across the fields of science, technology, engineering and math (STEM).  These indices reveal that “Flyover” country – the term that is often used derisively to characterize the U.S. geography between the coasts – is seeing a robust influx of knowledge workers.  The Colorado cities of Boulder and Fort Collins lead the nation in BCI at #1 and #2, respectively.  Other Top 15 BCI cities between the coasts include Raleigh & Durham, NC, Madison, WI, and Austin, TX.

RISE OF THE ROCKY MOUNTAINS

Private Equity sponsorship of technology firms is correlated with high BCI and strong net in-migration of highly skilled workers between the coasts.  For instance, Vista Equity, the premier software Private Equity firm, has almost religiously relocated large portions of its acquired portfolio companies’ staff to Denver.  In May of 2017, Vista portfolio company Vertafore announced it was relocating its Seattle metro headquarters to Denver with a transition plan that included the hiring of 300 additional workers.  Prior to selling Marketo to Adobe, Vista increased Marketo’s presence in Denver from 1 to 200 employees in 2017, with plans to increase that number to 500, to supplement its existing Silicon Valley headquarters.  About six months after Vista’s acquisition of Xactly in July 2017…

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Technology Report - 1H 2018

1H 2018 INDUSTRY UPDATE

BILLION DOLLAR DEAL MANIA

The first half of 2018 has seen a surge in massive tech M&A. As displayed in the chart below, 2018 has already seen 10 deals announced at valuations of greater than $1bn. This dwarfs the 12 massive deals done in all of 2017 and puts 2018 on pace for a record year for billion dollar tech deals. Is this phenomenon a pattern or are we just catching up from an anomalous dip in 2017?

There is little question that we are starting to see some consolidation, with young tech markets beginning to mature, particularly those focused on offering advanced analytical insights on customers and commerce transactions. For instance, Adobe’s acquisition of Magento and its flexible ecommerce platform for $1.68bn has as much to do with the predictive intelligence analytics that Magento has developed through its Magento Business Intelligence Pro dashboards as it does with the digital commerce and order management solutions that it provides. The traction that Magento has developed shows that the hype around machine learning is producing actual results, which is why Adobe is able to justify an 11.2x TEV/Revenue valuation.

SDR believes that while the back half of 2018 may not offer the same level of billion dollar tech M&A activity as the first half, there will be a continued upward trend in these large deals overall…

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Technology Report - Q1 2018

Q1 INDUSTRY UPDATE

SAP MAKES LARGEST ACQUISITION IN THREE YEARS

SAP had been relatively quiet on the M&A front for several years (especially in comparison to other large software firms) until its announcement on January 29 that it is buying U.S.-based Callidus Software for $2.4bn. SAP acquired CallidusCloud for its cloud-based CRM solutions. SAP had somewhat lagged its largest competitors in percentage of revenue coming from cloud technologies, and CallidusCloud will provide SAP with a cloud-platform to build a best-in-class “intelligent customer experience suite.”

For context, it had been nearly three and a half years since SAP completed a larger deal – when it acquired Concur Technologies for $7.2bn in 2014. The Concur deal marked the completion of an acquisition spending spree of over $15bn in less than three years, which included the purchases of SuccessFactors and Ariba, both in 2012. But between the Concur deal and this January’s announcement, SAP had not announced an acquisition with greater than $350mm Total Enterprise Value.

By contrast, from the span of the Concur deal through 2017, Oracle completed more than twice the number of acquisitions with announced values of 28 times those of its German rival. Even excluding the huge Oracle/NetSuite deal, the value of Oracle’s acquisitions over that period were nearly 10 times those of SAP. SDR believes that the Callidus deal is likely the start of SAP taking a more aggressive M&A approach in 2018 and beyond, as they look to bolster their core offerings with a new wave of “smart” cloud-based applications. Likewise, we do not expect that Oracle will take a back seat in pursuing inorganic growth…

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Q4 2017 Technology Report

Q4 INDUSTRY UPDATE

TAX IN TECH

With the largest tax overhaul since the Reagan administration now signed into law, we know that business will benefit from the reduction in the corporate tax rate from 35% to 21%. Bank of America Merrill Lynch predicts that EPS could rise by 10.5% this year for S&P 500 companies.

The technology sector could be one of the biggest beneficiaries of the new tax rules that tax cash profits held abroad at 15.5%. Under the prior tax laws, foreign profits made by U.S. companies were tax-deferred if they were not repatriated back into the U.S. As a result, U.S. companies have kept huge cash balances overseas (Congress estimates that U.S. companies have $2.6 trillion in untaxed overseas earnings). U.S. tech companies in particular have hoarded massive cash piles overseas in order to avoid paying U.S. taxes on overseas profits. For instance, Apple holds approximately 90% of its cash overseas, while Microsoft, Oracle, Cisco and IBM all hold more than 80% of their cash abroad.

Assuming that these companies repatriate shiploads of cash back into the U.S., the question remains: what will they do with it? Many pundits believe that it will primarily be distributed back to company executives and shareholders. However, many tech companies may benefit in using their repatriated cash for strategic initiatives like M&A. The software segment is perhaps the most likely to see an uptick in 2018 deal flow as a direct result of cash repatriation since large software firms tend to have high international cash balances relative to market cap. Furthermore, large software firms may be able to speed up their cloud development and increase their addressable markets through heightened acquisition activity.

2018 PREDICTIONS

As we head into 2018, SDR is anticipating that these trends will impact M&A and growth investments in the technology sector:

  1. Big Investments in Automated Machine Learning
    A significant bottleneck in enterprises rolling out major predictive analytics initiatives is the lack of experienced data scientists that are cross-skilled in coding (typically in R or Python), data cleansing and applying predictive modeling techniques. This is creating a large opportunity for companies focused on developing code-agnostic platforms that can automate data preparation and allow users to easily build models through a graphical interface.
  2. The AI Trillionaire Will Still Be a Lowly Multi-Millionaire in 2018
    Mark Cuban was famously quoted in 2017 saying that the world’s first trillionaire will be an AI entrepreneur. This may be the case down the road, but the reality in 2018 is that deep learning and true AI are mostly finding real commercial traction in very specific vertical industry applications. Deep learning is exceedingly complex and requires a lot of very smart human intelligence to solve real-world problems. The best minds at the most respected tech companies in the world are working on deep neural networks and, consequently, platforms are getting better at optimizing hyperparameters…

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Technology Report - Q3 2017

Q3 INDUSTRY UPDATE

MACHINE LEARNING PUBLIC CONVERSATION TRENDS

In reviewing global public filings over the last several years, SDR has identified interesting trends for machine learning as a topic of conversation. In the first quarter of 2015, the phrase “machine learning” or “predictive analytics” was mentioned 368 times across global public filings (8.3 mentions for every 10,000 filings in the period). In the third quarter of 2017 there were 1,116 mentions (25.0 mentions for every 10,000 filings in the period). For each of the first three quarters of 2017, these mentions grew by at least 100% over the same quarter in 2016. Clearly, machine learning is increasing as a topic of public conversation. However, it should be noted that the year-over-year quarterly growth rate for mentions has dipped each of the last two quarters (119% in Q1, 112% in Q2 and 102% in Q3).

SDR anticipates that machine learning will continue to grow as a topic of public conversation. However, as investors in the public markets begin to ask for meaningful action and results from machine learning, companies may be less inclined to casually throw these terms around.

THE RULE OF 50

One common metric that technology investors often use to quickly evaluate the performance of tech companies is the “Rule of 50.” Companies whose revenue growth and EBITDA % sums to 50 or higher are considered “elite.” Companies where those two metrics sum between 40 and 50 are considered “really good.” In reviewing performance across SDR’s various technology segments, it may be somewhat surprising that a fairly unsexy space like Hosting & Data Centers would be the only segment as a whole that reaches the rarified air of the Rule of 50. However, with the proliferation of cloud data and outsourced IT the Hosting/Data Center industry is sort of like wrapping paper at Christmas – pretty much everyone needs it…

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Q2 2017 Technology Report

Q2 INDUSTRY UPDATE

ENTERPRISE VALUE IN MACHINE LEARNING

In the recent tech economy, as long as a company spelled “machine learning” correctly, it could expect to raise a round of capital around the concept of predictive analytics or artificial intelligence. It has been somewhat reminiscent of the days in the late 1990s when having an ecommerce website (i.e., eToys.com or Pets.com) was perceived as all that was needed to create lasting business value via this new advance in technology. In fact, it was not until July 19th of this year that the S&P 500 IT Sector index finally surpassed the 988.49 high set in March 2000. However, the capital markets seem to be figuring out where true competitive advantages lie, and which advantages can be monetized in the next phase of this rapidly advancing world of data-based prediction and automation of human decision. As CB Insights recently pointed out, investments in AI-centric technology companies dropped by 19% in Q2 2017 compared with Q1 2017. By no means does this mean that the space is less “hot,” but investors may be trending toward more than a modicum of discernment.

So what are ways that companies are finding that machine learning is driving real business value today? The first area where machine learning-focused companies are driving significant value is in making the historically labeled “black box” of the underlying algorithms more transparent. Until recently, the inner workings of the various modeling techniques (Random Forests, Gradient Boosting, Support Vector Machines, etc.) were difficult, if not virtually impossible, to trace and explain. For executives making decisions, it can be extremely tricky to trust outputs based on new big data-based paradigms when the “Why?” questions to a modeling output draw blank stares from the data scientists who built them. Very few management teams or boards have been willing to accept the “because the model told me so” defense. In fact, regulatory hurdles can be machine learning killers in certain industries or geographies. For instance, the European Union has introduced legislation (the General Data Protection Regulation) that will restrict automated individual decision-making that is void of explanatory power.

DataRobot, Inc. is one machine learning-centric company that has continued to successfully raise capital ($54mm Series C round in March 2017 for a cumulative $108mm of capital raised to date). DataRobot is directly addressing the transparency hurdles so that machine learning practitioners can readily communicate why a model does what it does. The company’s product documents the process that a particular algorithm goes through, records its out-of-sample accuracy, demonstrates sensitivity around the model’s independent variables, shows how individual adjustments to inputs impact outputs, and provides reasoning around each case-by-case prediction. For companies specializing in predictive analytics to gain wide acceptance and achieve scale within a given sector, and especially around specific data-based decisions, they will need to demonstrate the ability to easily let users “under the hood” in order to let decision makers get comfortable with their algorithms’ explanatory power…

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Q1 2017 Technology Report

Q1 INDUSTRY UPDATE

BUSINESS INTELLIGENCE PLATFORMS JOCKEY FOR MARKET LEADERSHIP

When Gartner released its latest Magic Quadrant for BI and Analytics Platforms in February, Tableau, Microsoft and Salesforce.com had made significant positive strides relative to the field. Acquisitions played key roles in this movement for both Salesforce.com and Tableau.

Salesforce.com purchased BeyondCore (itself a “Visionary,” according to last year’s Gartner report) in September 2016 to hasten its progress in smart data discovery – an AI-centric approach to data analytics that helps users find stories within the data without requiring them to build their own models. Tableau purchased Hyper last March to enhance its capabilities with unstructured data and, in turn, offer faster analysis of large data sets.

One company that experienced a significant slide in Gartner’s eyes was Alteryx. Gartner’s concerns about Alteryx stem from its lacking data visualization capabilities and historical reliance on filling in missing competencies in self-service data preparation among its partners. While Tableau, Salesforce.com and Qlik were active acquirers in 2016, Alteryx was not. Alteryx’s strategic path forward finally was revealed in late February when the company announced its intention to issue an IPO. On March 24, the company issued its $126 million public offering at $14/share. The IPO will provide Alteryx with the capital to address its perceived shortcomings as a full-service BI and Analytics tool…

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Q4 INDUSTRY UPDATE

Q4 2016 Technology Report

2016 LOOK-BACK

Despite the M&A fervor of 2015 seemingly overshadowing 2016 in terms of overall volume, 2016 still was the third-biggest year for M&A on record. But with a record year set in 2015, global M&A deal value did decrease by 17% from 2015 to 2016. However, on the tech side, 2016 came closer to matching 2015, with a reported $612.9 billion in global tech deals vs. $691.4 billion in 2015, representing roughly an 11% drop. Tech mega deals helped fuel the late M&A rally.

A bevy of mega deals dominated 2016 tech, including:

  • SoftBank’s $31.6 billion acquisition of chip designer ARM Holdings announced in July
  • Microsoft Corp’s $26.2 billion deal to acquire LinkedIn Corp, which was announced in June and finalized at the end of December
  • Oracle’s $9.3 billion purchase of NetSuite, which was announced in July and closed in November
  • More division occurred within HP, with Micro-Focus’s Q3 purchase of Hewlett Packard Enterprise (software) for $8.8 billion and Computer Sciences Corp’s $8.3 billion merger with HPE (enterprise services) announced earlier in 2016

ENTERPRISE SOFTWARE EATING THE ANTIQUATED CORPORATE & SMALL BUSINESS WORLD

Change is a constant in the ever-evolving enterprise software space, but several trends seem to have floated to the top. These trends largely are driven by shifting enterprise needs and even workforce demographic shifts. Across each segment of the enterprise including HR, Marketing, Sales, Finance, Operations and Supply Chain, software is becoming the means to increase productivity without increasing headcount. In 2016, enterprise tech was proven to be a highly lucrative investment as seen by the enterprise technology IPOs’ outperformance. The return of the tech IPO began in 2016 as we saw the average tech IPO return 26%+ post-IPO, with a majority of the IPOs focused on the enterprise.

The rise of enterprise SaaS was expected in 2016 and came to fruition. More companies in antiquated industries that previously feared technology now are intrigued and willing to try out the idea of a SaaS solution. Enterprise software companies took advantage of this opening in 2016. Acquirers including large tech companies and private equity groups are realizing the disruption of these SaaS solutions and continue to make add-ons to their product offering and investment portfolios…

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Q3 INDUSTRY UPDATE

The Return of the Tech IPO

Technology M&A Report - Q3 2016

The lull in IPOs for the tech industry has subsided as more technology companies have successfully become public companies this year. Previously, the abundance of venture capital, low interest environment, increasing valuations in each round of financing and large opportunities for growth had discouraged technology companies from taking on the burden of being highly scrutinized public companies. However, in today’s environment valuations are more uncertain for later-stage venture rounds and the public markets have become a central strategy for companies to raise capital and provide exit opportunities for investors.

With companies such as Uber and Snapchat planning IPOs in the coming months, high-growth technology companies are viewing IPOs as a solid exit option. Looking at the recent performance of technology IPOs in Q3 2016, the focus on the enterprise has been a key ingredient for success. Almost all of the tech IPOs have been focused on the enterprise with the best performers Nutanix, Impinj and Twilio solely focused on delivering technology to the enterprise.

Although an IPO most likely is not the right option for most middle-market technology companies, the recent success of tech IPOs will fill the coffers of public tech companies with large amounts of dry powder. Combined with the high expectation for growth from public markets, acquisitions of leading middle-market technology companies are expected to be a key avenue for growth…

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Q2 INDUSTRY UPDATE

Brexit’s Effect on Technology

Q2 2016 Technology M&A Report

Although the Technology sector performed well this quarter with many top stocks setting new highs, the effect of the Brexit decision in the U.K. was felt noticeably at the end of the quarter. Technology companies saw the brunt of the decline in the days after Brexit, with many stocks falling over 3% in one day. Many of our technology clients have inquired about the short-term effects of Brexit after seeing the impact on technology stocks, but there remains uncertainty about the long-term effects of the decision as well. Although not always obvious from the onset, we have seen historically that cooler heads usually prevail in the world of technology (at least eventually). Plus, most middle-market technology companies do not have a large exposure to the United Kingdom. The only apparent effect of Brexit so far is that it may make it even harder for technology companies to find talent, which has already been a tough endeavor without the recent Brexit decision.

Ever-Changing World of Enterprise Tech

The enterprise technology arena changed significantly this quarter with Microsoft acquiring LinkedIn for $26 billion, one of the largest tech deals announced in 2016. As reported by Re/Code, LinkedIn had a total of five suitors including Google, Salesforce and Facebook. So what was so valuable that five of the most influential technology companies would compete to acquire LinkedIn? According to Satya Nadella, Microsoft’s CEO, the deal is intended to combine the tools that workers use to get jobs done (i.e., Microsoft Office) with the professional network that connects workers. With over 433 million members, LinkedIn is one of the largest professional networks and provides key social data on Microsoft users. Integrating the Microsoft Office suite and the LinkedIn Professional network will pose an initial challenge, but if done successfully, Microsoft could achieve its dream of once again dominating the enterprise tech space…

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Industry Overview

Technology Industry vs. S&P 500 - Q1 2016

Market uncertainty slowed the M&A momentum within the Technology industry in Q1. Many firms have chosen to forgo acquisitions until the market stabilizes, resulting in total transaction volume decreasing by 21% compared to Q1 of 2015. This recent decrease in deals is unlikely to continue when, as anticipated, previously dormant tech giants return to the M&A market. Shifting market dynamics and readily available capital by companies with significant VC backing and cash on the balance sheet are predicted to drive additional M&A for the remainder of 2016. The rapid pace of technological change and the fluid competitive landscape has many firms vying to capture market share from other, slower moving competitors. Specifically, firms are eyeing acquisitions of data analysis/visualization, hybrid cloud and cybersecurity firms, while the market opportunity still exists.

Cybersecurity, once one of the strongest-performing segments in the Technology industry, has re-emerged as a focus for strategic and financial buyers in Q1. Steady corporate demand for security solutions, solid revenue growth within the segment and the recent decline in share prices of cybersecurity companies all make this an attractive segment for acquisitions. Larger firms, such as IBM, are increasingly looking to acquire smaller cybersecurity companies with disruptive capabilities in order to gain a competitive edge over their peers. Symantec, a legacy leader in computer security, also received a strategic investment of $500 million from Silver Lake in order to execute on its transformation plan and to help remedy its recent missteps in the market.

Although most tech giants recently have reduced their M&A activities, two have bucked the trend in a bid to establish market share in emerging technologies. Instead of building expertise in-house, both IBM and Cisco continue to acquire startups, refreshing their product offerings and gaining a lead on new solutions in rapidly evolving segments. Cisco’s recently announced acquisition of CliQr for $260 million highlights this trend. As a leading provider of application-management solutions for hybrid cloud environments, the deal will help Cisco manage software running in its own data centers as well as external cloud providers.

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