2017 was one of the bets years for the technology sector as it accounted for the six most valuable companies in the world. However, the year was also one which did not see much of large tech deals.
However, experts are of the opinion that 2018 would be different.
Robert Townsend, co-chair of global mergers and acquisitions at law firm Morrison & Foerster said that boards and CEOs of technology companies that do not have much reach are being required to seek ways to thrive independently even as companies like Alphabet and Apple enhance their product range and market share.
And additionally, tech giants of the U.S. would be able to bring back home cash that they had stashed away in foreign banks at very low tax rates in addition to the anticipated reduction in corporate taxes beginning in 2018.
“There’s truly getting to be a few companies at such a scale, like Amazon, Google, Apple, Microsoft, and Alibaba and Tencent that the world is going to be like a barbell, with a large gap in between with humongous tech and IT service providers on one side and everyone else on the other,” Townsend said. “That’s an uncomfortable place to be if you’re not at the very top.”
According to FactSet, in 2017, there had been only three deals in the technology sector that were valued at $5 billion or more and which involved a U.S. buyer or a seller. These were the Marvell’s takeover of Cavium, Intel’s acquisition of Mobileye and the sale of Toshiba’s memory chip.
In comparison in 2016, there were 12 deals announced that were over the $5 billion mark. And the year before, there were 8 such large deals.
Transactions of that size or larger may become much more commonplace, said Townsend. And the deals may take place in segments which would be unexpected because of the fact that Google is pursuing a strategy of expansion in the cloud services and automation segment while Apple is investing in original content and Amazon has entered into the segment of physical retailing be acquiring Whole Foods.
The IPO market has also been cooled by the dominance of big tech. For this segment, IPOs have been the lowest in the last two years ever since 2009.
SoftBank’s $100 billion Vision Fund is an example of funding sources of capital for start-ups which have reduced heir concerns about taking on the big platforms and have allowed such start-ups to remain private for longer period.
In 2018, IPOs are expected to be near historic laws by Larry Sonsini, founding partner of law firm Wilson Sonsini Goodrich & Rosati.
“That will lead to more power by some of the giants, who will start consolidating more and taking companies off their IPO track,” he said.
“If you’re looking to deploy cash, U.S. targets just got a lot cheaper,” said Jamie Wickett, a partner at Hogan Lovells. “You’re effectively on sale to anyone looking to buy a U.S. company.”
(Adapted from CNBC.com)