TECHNOLOGY M&A REVIEW January 2019 contentS 4 Key statistics 5 Highlights 6 Macro Overview 8 US Technology M&A 10 — Largest US deals 12 — US Tech IPOs 14 UK Technology M&A 16 — Semi conductors 16 — FinTech 17 — Cyber Security 18 — AI and Machine Learning 19 — Public Sector 20 — HR 20 — Property 21 — Cloud Software 22 — E-Commerce 23 — Communications 24 — IT Managed Services 26 — Digital Media 27 — Health 28 — UK Risers and Fallers 30 — UK Tech IPOs 32 Outlook ICON Corporate Finance, 2019 Creating wealth from technology 3 KEY StatiSTICS HIGHLIGHTS 18 20 1 3 C E D Global equity markets have had a great 8 2 7 , run, without really pausing for breath, 6 / and so a return to more ‘normal’ levels 8 FTSE FTSE techmark 8 UK percentage 6 8 of volatility in the past few months is , 1 31 20 7 0 of cross-BORDER EC 18 D 2 no great surprise. The US economy 35 7 ,6 1 1 0 DEALS 6 3 has powered ahead in 2018 with full / 2 6,728 3,309 3 C 1 0 E 3 employment, high corporate earnings 9 , D C 6 8 E –12% –7% 1 7 % 0 growth fed by tax cuts. But the Fed have D 8 1 2 % 38 0 3 1 2 3 / continued to increase interest rates and D C nasdaQ E 1 E % C D 3 3 9 9 1 –3% China growth is slowing, so the outlook 3 0 2 C 3 0 , 1 3 7 7 / 3 0 , 5 E 5 1 0 is for US growth to slow. It is a similar D 2 1 3 C E story in EU where quantitative easing 6,635 D 8 1 has just finished, which will withdraw a 0 2 NYSE fang+ –4% 1 much needed stimulus. 3 C E 1 2017 8/17 D 3 D EC EC 7 The number of global technology M&A D 31 2 2,227 2 C 31 2017 5, 2 0 E 07 , 1 D 1 deals fell 13%, although comparison 8 / 2 4 / ,4 is with a strong 2017. However, the 6 0% 8 2 7 2 D , UK tech market remains healthy and some 2 E C 7 1 gloBAL 0 3 valuations are spectacular, particularly 2 IPOs 1 1 3 18 0 C 2 E 2 1 D TECH M&A in Cloud Software. The number of 3 0 C E 1 D 8 6 DEALS (No.) deals in the UK fell by only 4%, which .2 17 1 / was impressive given all the Brexit 5 3 uncertainty. One of the main drivers . +113% 1 USD/GBP 4,487 7 remains the weaker currency which 1 0 EXCHANGE rate 8 2 attracts a number of overseas acquirers 1 UNICORNS –12% 1 0 2 3 31 2018 who still account for nearly 40% of all 1 C C DE 3 E 8 deals. In fact 9 out of our last 10 exits D 6 1.26 C 4 , E 1 D / were to an overseas acquirer. 261 2 1 3 –7% 6 6 2 , EU / +25% 1 9 7 The Year of The Pig is surrounded 0 TECH M&A 1 2 0 7 2 by uncertainty, both political and 1 0 DEALS (No.) 2 1 1 3 3 economic, particularly without the C E D C E safety blanket of quantitative easing. D 1,468 However, there still seems to be plenty of confidence about. Valuations remain –11% high with Microsoft, Google, Cisco, 8 01 2 OpenText, Workday, RELX, SAP, 1 017 2.8/ 3 PRICE to 1 2 2.7 C 3 D Adobe IBM Temenos Docusign C E EC , , , , E 8 D 3 UK D 1 EBIT (x) 1 0 Salesforce and PayPal all having paid 9 2 2 0 0 12mth AVerage 1 TECH M&A bitcoin (USD) 1 8 8 more than 10x revenues for their most , 3 D 3 PRICE to E C DEALS (No.) / C recent acquisitions. In Technology E 0 D 3 REVENUE (x) 6 1 2 M&A, although the number of deals is . 8 2 , 23.2 3 3,809 0 3 12mth AVerage 2 1 down, the total value was up 22% last 1 / 7 400 2 7 4 2 1 +5% year and some of the valuations are 1 0 –73% 7 7 2 1 0 / 1 2 –4% snorters, pardon the pun. I doubt 2019 4 3 1 0 3 2.7 C C 0 E E D D will be boaring. D E C 3 1 –3% 2 0 1 8 ICON Corporate Finance, 2019 Creating wealth from technology 5 macro OVERVIEW gloBAL tech M&A dealS (No.) The bears will say, we have increased political risk with worries about US trade 5,208 5,071 wars, never ending Brexit negotiations, rising gloBAL tech M&A dealS (VALUE) interest rates, China trade, populist politics 4,708 4,579 ‘‘ and the end of quantitative easing. 4,427 4,328 Number of deals is down 4,248 ‘‘ but valuation is up The bulls will say interest rates still remain 3,916 3,900 444,000 pretty low, economic growth is OK and 3,617 is pretty good in USA, there is very low unemployment everywhere, inflation is low 336,875 and corporate profits are growing at a good 3,106 329,000 clip, particularly in the USA. Also, in the US 271,843 269,000 a significant corporate tax cut has boosted earnings and overseas cash repatriation. 2008 2010 2012 2014 2016 2018 211,748 2018 was a bad year for almost all 165,000 152,500 asset classes as bonds, equities, 126,000 127,000 117,000 Technology M&A VALUATIONS property and commodities all fell. Brexit is a sideshow, the main fear 2008 2010 2012 2014 2016 2018 26 3.5 is a global slowdown in economic growth caused by China, the end UK tech M&A dealS (No.) 24 of quantitative easing and rising 3.0 US interest rates. The UK economy 22 has slowed due to uncertainty over 565 Brexit but is actually muddling 20 along alright (so far) and the 479 2.5 EU tech M&A dealS (No.) Price/EBIT weak currency has stimulated 428 (LHS) foreign investors who continue to 417 18 400 393 pour money into UK to acquire 373 353 2.0 everything from skyscrapers in 1,632 16 1,596 London to football teams and well- 281 1,468 1,414 run tech companies. 1,371 14 229 Price/revenue 1.5 1,221 187 (RHS) 1,161 Looking ahead, the return to more 12 “normal” monetary conditions 958 925 in 2019 will likely coincide with 828 10 1.0 715 slower economic growth globally. 2008 2010 2012 2014 2016 2018 2008 2010 2012 2014 2016 2018 The result is that equity market conditions are returning to more normal conditions – i.e. they may go down as well as up. Having risen for nearly 10 years, the outlook is likely to 2008 2010 2012 2014 2016 2018 be choppier for a while. However, few are forecasting a recession and interest rates remain pretty low everywhere. So, in a world where growth is slowing a notch then the higher growth Technology sector will continue to remain relatively attractive. ICON Corporate Finance, 2019 Creating wealth from technology 7 LARGEST TECH WRITE-OFFS US TECHNOLOGY M&A Autonomy Autonomy In 10 years’ time when we look back at recently, on hybrid cloud infrastructure which 5 of them, so knows them well. Valuation All Time Top 10 List of Odd Deals then would seem to be the key attraction for was 3.6x revenues. The products are arner acquired AOL AOL arner acquired probably the AOL/Time Warner deal will still IBM. In a statement, IBM CEO Gini Rometty Appscan (vulnerabilities in mission-critical osoft acquired aQuantive aQuantive osoft acquired rank as Number 1. Hard on its heels will framed the deal as one that will make IBM applications); BigFix (endpoint security osoft acquisition of Nokia Time W gle acquisition of Motorola HP acquisition of be the acquisition by Broadcom, the highly the leader in hybrid cloud solutions, and software); Unica (marketing automation); Micr erizon acquire AOL and Yahoo AOL erizon acquire Micr Goo V acquisitive semi-conductor manufacturer, remain firmly committed to open source. She IBM WebSphere Commerce (e-commerce of CA Technologies, the mainframe says Big Blue is set up to lead a market that’s platform); IBM WebSphere Portal (web portal infrastructure software supplier. Broadcom worth more than $1tn. The deal strategically development); Domino (collaboration); and 2015 2014 2011 2011 2007 2000 paid $19bn or 4.5x revenues for the slow pits IBM against Amazon Web Services Connections (email and file and document growth main-frame business in a deal that and Microsoft Azure, which use proprietary sharing). Looks like some housekeeping, but SS looks at face value to have a questionable platforms in their public cloud operations. it is a bold call buying companies at 11x O strategic fit. Broadcom, which is run by Hock revenues and selling at 3.6x. Tan out of Singapore, had a $160bn bid for A couple of months after the Red Hat Qualcomm rebuffed in 2018 by Mr Trump deal was announced HCL Technologies $4.3bn L and this looks like a rather odd replacement. paid $1.8bn to IBM to acquire 7 software products in the marketing automation, SS Not all deals are successful and some lead commerce and security areas that IBM O to significant destruction of shareholder says tend to be sold on a standalone basis.