US technology

deals insights
Q3 2015 update
October 2015
A publication from
PwCs Deals Practice
At a glance
Third quarter deal
values remained in
line with historical
norms, while large
deal announcements
increased.
The Software sector led
the charge, driving deal
volumes and values.
Strength in the middle
market returned after a
modest decline during
the first half of 2015.

Middle-market maintains momentum amid

mixed market conditions. Announcements point
toward a steady level of deal activity.
Introduction
Welcome to the Q3 2015 issue of
PwC's US technology deals
insights. Despite modest
slowing in certain sectors, the
third quarter continued the
momentum of an active deals
market. Volumes declined
marginally from the prior
quarter, while values
demonstrated a slight increase.
Largely driven by a standout
quarter for the Software sector,
third quarter activity
concentrated in the middle
market and increased overall
deal values.

4%
increase in deal
values amid a 5%
decrease in deal
volumes

62 technology deals closed for $25.1

deals market in terms of both volume

and value.

billion in deal value.

Private Equity buyout activity made

Deal values increased 3% while deal

up 28% of deal values, driven largely

by one new portfolio addition:
Informatica.

volumes declined 5% compared to

the prior quarter. The increase in the
middle market contributed to the
growth, while the number of billiondollar deals declined.

Divestitures decreased in terms of

both volume and value.

Average deal value of $404 million in

Technology IPOs plummeted to the

Q3 2015 and $366 million during

year-to-date 2015 remained
noticeably below the average over the
past several years.

least active quarter since Q1 2009,

raising only $168 million in new
proceeds.

Europe remained the focal point of

Median deal values increased to $105

US investment abroad, while foreign

acquirers outpaced US deal-makers
in terms of cross-border investment.

million during Q3 2015, though still

trailing that of $107 million and $133
million in 2013 and 2014,
respectively.

Transaction multiples across the

technology sector increased on

average given the prominence of
Software deals, while public trading
multiples exhibited a general decline
across the Internet, Hardware, and
Semiconductor sectors.

There were 5 billion-dollar deals

closed in Q3 2015, and 10 additional

announced.

Technology Deal Volume & Values

2013

$80

2014

2015

$70

76
67

$60

$in billions

80
70

76

71

67

65

63

59

$50

More broadly in capital markets,

volatility in equities increased
(dipping below the recent record
highs), venture capital
investment declined 6% to $16.3
billion, and IPO markets
generally stayed active despite a
significant decline specifically
within Technology.

Software deals led the technology

Highlights this quarter

60
62
50

$40

40
42

$30

30

36

$20

20

$10

10
$10.6

$14.2

$27.8

$47.2

$27.8

$28.9

$29.8

$74.9

$25.0

$24.2

$25.1

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

$0

0
Closed deal value

Closed deal volume

Conclusion
Despite a modest decline in deal volume,
and increasing uncertainty in capital
markets, new deal announcements
remained prominent, and middle market
deals continued to exhibit strength. Recent
megadeal announcements continue to shift
the competitive landscape, with more than

US technology deals insights | Q3 2015 update

$100 billion in announced deals pending

closure. While down from the recordbreaking level of deal activity 2014, the
technology sector is well positioned to
continue its longer-term deal momentum
and close out 2015 with an active deal
market.

Table of contents
Introduction

Market overview

Cross border deals

Market movers and sectors

Software

Internet

10

Hardware

11

IT services

12

Semiconductor

13

Focus article

14

US technology deals insights | Q3 2015 update

Continued megadeal

Market overview

announcements in
technology point toward
a healthy deal market
and shifting competitive

$25.1B

landscape.

in closed deal value

during Q3 2015

62

Rob Fisher
US Technology Deals Leader

deals closed during

Q3 2015

Highlights this quarter

The Software sector continued to lead technology deals in
terms of both deal volume and value, despite being a sector
typically characterized by smaller deal values.
IT Services remained the second most active sector
throughout 2015, despite a decline in average deal value
during the third quarter, as companies continued to expand

their service offerings to specialized solutions servicing

other industries.
Similar to the Semiconductor sector, the Hardware sector
exhibited volatile quarterly deal activity, both sectors
demonstrating fewer deals in the third quarter.
Internet deal activity declined modestly in the third
quarter, continuing a trend exhibited over the past year.

Closed deal values by sector

# of
deals
Software

26

Internet

Hardware

IT Services

11

Semiconductor

$0

$ in millions
$15,483

$2,498

$3,733

$1,888

$1,458

$5,000

US technology deals insights | Q3 2015 update

$10,000
Q3 2015 Deal Value ($)

$15,000

$20,000

Closed deal volume by tranche

2013

80

2014

2015

70
60
50
40
30
20
10
0
Q1 '13

Q2 '13

Q3 '13

Q4 '13

Small (<$100m)

Q1 '14

Q2 '14

Q3 '14

Medium (>$100m - <$1,000m)

Closed deal volumes

The largest proportion of deal volumes in Q3 2015
continued to remain smaller sized transactions (less than
$100 million in value), albeit having declined over the past
two quarters.

Q4 '14

Large transactions (billion-dollar deals) comprised

Software, Internet, and Hardware deals. Despite recent
announcements, no large transactions closed in the
Semiconductor or IT Services sectors during Q3 2015.

2014

2015
76

$70

80

76

70

71
67

$ in billions

$60

67

65

63
59

$50

62

$20

60
50

$40

40
36

$30

30

20

$10

10

$0

0
Q1

Q2

Q3

Q4

Q1
Q2
Corporate

Q3
PE

Q3 '15

Large (>$1,000m)

Corporate vs. private equity

2013

Q2 '15

third quarter. Notably absent from mid-size transactions

were Internet deals as the decline in Internet deal volumes
centered on the middle market.

Sector dispersion amongst mid-size transactions ($100

million $1,000 million) was concentrated in the Software
sector, accounting for nearly half of all mid-size
transactions in the

$80

Q1 '15

Q4
Q1
# of deals

Q2

Corporate vs. private equity

New portfolio acquisitions by

buyout firms increased
during the third quarter,
comprising 13% of total deal
volume and 28% of deal
values.

Key private equity buyouts

included the $5.3 billion
Permira-led acquisition of
Informatica, as well as
additional deals by Francisco
Partners, ThomaBravo, Visa
Equity Partners, and others.

Q3

US technology deals insights | Q3 2015 update

Divestiture volume and values

2013

$25

2014

2015

30
25

$20
$21.3

20

$in billions

$15
$14.7
$10

15

$10.3

$9.8

$5.0

$4.7

$6.1

Q1

Q2

We continue to likely expect

portfolio pruning to
contribute to a healthy level
of divestitures throughout
the remainder of the year.

$4.2

$1.3

$0

10

$7.3

$6.9

$5

Divestiture highlights

While technology divestiture

activity decreased during the
third quarter, the level of
divestitures including
undisclosed values relative
to total deals has increased
throughout 2015.

0
Q3

Q4

Q1

Q2

Deal Value

Q3

Q4

Q1

Q2

Q3

Deal Volume

IPO volume and values

2013

$25

2014

2015

25

2 IPOs
for $0.2B

$23.5
20

$15

15

$in billions

$20

$10

$5

5
$5.1

$4.3
$1.0

$2.6

$1.3

Q1

Q2

Q3

$1.9

$1.0

$1.3

$2.0

$0.2

Q3
Q4
IPO Volume

Q1

Q2

Q3

$0

0
Q4

Q1
IPO Value

Transaction Multiples

Overall revenue and EBITDA

multiples increased in Q3 2015
since the prior quarter.

The lowest level of

technology IPOs
since Q1 2009.

10

Transaction multiples were pushed

higher due to a few significant deals
in the software and semiconductor
spaces.

Q2

Source: PwCs IPO Watch

Technology sector transaction multiples

2013

5.0

2014

2015

25.0x

4.0

20.5x
16.1x

3.0

2.0

13.0x

19.7x

17.0x

16.6x

15.3x

14.0x

20.0x
15.3x
15.0x

12.1x

10.0x

1.0

5.0x
3.3x

2.1x

2.4x

3.0x

2.4x

2.9x

4.4x

3.8x

2.2x

1.8x

3.8x

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

0.0

0.0x
EV / Revenue

30.0x

24.8x

US technology deals insights | Q3 2015 update

EV / EBITDA

Europe continues to remain the focal point of

US investment abroad, while foreign dealmakers outpaced US technology companies in
terms of cross-border investment.

Cross border deals

Deal concentration by geography for US acquirers

2%
8%
Canada
Europe

78%

6%

United States

Asia

6%
Rest of World

Highlights this quarter

Cross-border transactions comprised 39% of technology
deals in Q3 2015, inclusive of US acquisition targets.
European targets continued to be the focus of US
investment abroad, while investment in Asia remains
depressed amid slowing growth forecasts.

companies in the third quarter. US acquirers closed 11

deals for an aggregate deal value of $4.5 billion, while
foreign deal makers acquired 13 US companies, totaling
$7.5 billion.

Foreign investment in the US (value in $B)

US investment abroad (value in $B)

$0.6

Foreign acquirers continued to outpace US technology

$0.3

$0.3

$1.4

$0.3

$5.8

$3.4
Asia

Europe

Canada

Rest of World

Asia

Europe

Canada

US technology deals insights | Q3 2015 update

Market movers and sectors

Large transactions
focused on cloud
software, as well
as technology
companies servicing
other industries

55%

Billiondollar deal
announcements
increased in
Q3 2015

of deal value
derived from
billion-dollar deals
in Q3 2015

Key closed transactions

During the quarter, 5 deals in excess of a billion dollars
closed. The largest closed transactions include:

Key announced transactions

During the quarter, 10 deals in excess of a billion dollars were
announced but had not yet closed, including:

FISs $9.2 billion announcement to acquire Sungard

Data Systems.

The $8.0 billion acquisition of Symantecs Veritas

business, a provider of information management
services, by an investor group led by The Carlyle Group.

Dialog Semiconductors $4.6 billion acquisition of Atmel,

a provider of microcontrollers and other semiconductor
solutions.

Visa Equity Partners $3.8 billion acquisition of Solera

Holdings, a provider of risk and asset management
software and services.

The 2.8 billion acquisition of Nokias digital mapping

business by BMW, Audi, and Daimler.

The $5.3 billion acquisition of Informatica, a provider of

enterprise data integration software and services, by
Permira Advisers and the Canadian Pension Plan
Investment Board.
CommScopes $3.1 billion acquisition of the Broadband
Network Solutions (BNS) business unit of TE
Connectivity Ltd.

SS&Cs $2.6 billion acquisition of Advent Software, a

financial services software provider.

Expedias $1.6 billion acquisition of Orbitz, a rival online

travel services company.

EMCs $1.2 billion acquisition of Virtustream, a cloud

software and services company.

Billion-dollar deals
$70

15

2013

2014

2015

$60
12

$ in billions

$50
$40

$30

$20
3
$10
$0

Q1

Q2

Q3

Q4

US technology deals insights | Q3 2015 update

Q1

Q2
$ value

Q3

Q4
Q1
# of $1b deals

Q2

Q3

Software
Closed deal values ($) / volumes trended over 3 years:
$25

Software trends:

2015

2014

2013

30

28
$20

26

26
22

$in billions

23

22

$15

Software deal volumes

increased during the
third quarter, as deals
shifted from small to
mid-size transactions.
Overall deal volumes
remained well above the
trailing 3-year average.

Largely driven by three

billion-dollar deals,
average deal values
more than doubled in
Q3 2015 to $595
million, as compared to
$249 million and $379
million in Q2 2015 and
Q3 2014, respectively.

Median deal values

significantly increased
to $252 million in Q3
2015, well above the
trailing 3-year average
of $82 million.

25
20

22

20

19

15
15

$10

10
8

$5

5
$5.9

$1.5

$12.7

$3.8

$7.8

$4.2

$7.6

$22.8

$3.7

$5.5

$15.5

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

$0

0
Deal Value

Deal Volume

Average and median values ($M) / volumes trended over 3 years:

2013

Q1

Q2

Q3

2014

Q4

Q1
Average Deal

Public takeaways:

Q2

2015

Q3
Median Deal

Q4

Q1

Approximately two-thirds of
companies in the Software
subsector showed declining
EV/revenue multiples in Q3
2015.
Size continues to matter as
sub-$1.0 billion market cap
companies traded at a 3.5x
lower average revenue
multiple than >$1.0 billion
companies.

Q3

Software public company multiples (median)

6.0

Median revenue and

EBITDA multiples declined
in Q3 2015 after having
trended up over the past
three quarters.

Q2

2013

2014

5.0

16.4x

16.3x
4.0

15.1x
14.0x

15.2x

14.8x

15.2x

20

2015
16.4x

17.5x

18
16.5x

16
14

15.2x

12

3.0

10
8

2.0

6
4

1.0

2
3.4x

3.4x

3.6x

3.8x

3.5x

3.5x

Q1

Q2

Q3

Q4
Q1
Q2
EV / Revenue

3.1x

3.4x

3.5x

3.7x

3.3x

Q3
Q4
EV / EBITDA

Q1

Q2

Q3

0.0

Source: Capital IQ

US technology deals insights | Q3 2015 update

Internet
Closed deal values ($) / volumes trended over 3 years:

2013

$40

Internet trends:

2014

2015

$35

30

25

Internet deal volumes

continued to decline in
Q3 2015, the third
consecutive quarter of
declining deal activity.
While low compared to
that of last year, 2014
was the most active deal
market for the Internet
sector since the dot com
era.

While average deal

values in the Internet
sector have been
volatile, often skewed
by large transactions,
median deal values
declined in Q3 2015 as
mid-size deals were
largely absent during
the quarter.

25

$30

$in billions

20

21

$25

18

$20
$15

12

15
12

10

11

$10

7
$5

$0

5
$1.5

$4.5

$1.9

$1.7

$8.9

$2.6

$4.8

$33.4

$6.8

$3.2

$2.5

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

0
Deal Value

Deal Volume

Average and median values ($M) / volumes trended over 3 years:

2013

Q1

Q2

Q3

2014

Q4

Q1
Q2
Average Deal

Public takeaways:

2015

Q3
Median Deal

Q4

Approximately three-fourths
of companies showed
declining revenue and
EBITDA multiples in
Q3 2015.

Q3

2013

2014

4.0
16.4x
15.4x

3.0

12.9x

20

2015

18
16

17.1x
15.7x

15.2x
13.7x

14.2x

14.7x

15.2x

14

12

12.2x

10

2.0

8
6

1.0

4
2
2.7x

2.9x

3.5x

3.4x

3.3x

3.3x

Q1

Q2

Q3

Q4
Q1
Q2
EV / Revenue

2.8x

2.8x

2.7x

2.7x

2.0x

Q3
Q4
EV / EBITDA

Q1

Q2

Q3

0.0

Source: Capital IQ

10

Q2

Internet public company multiples (median)

5.0

While the median EBITDA

multiple decreased modestly
from the prior quarter, the
median revenue multiple
exhibited a notable decline
to the lowest level seen over
the past three years.

Q1

US technology deals insights | Q3 2015 update

Hardware
Closed deal values ($) / volumes trended over 3 years:

2013

$40

Hardware trends:

2014

2015

18
16

$35

16
13

$in billions

11
9

There was only one

billion-dollar deal in Q3
2015, despite being a
sector historically
characterized by having
several large
transactions.

Average deal values

declined due to the lack
of billion-dollar deals
and median deal values
dropped to $50 million,
significantly below the
trailing 3-year average
of nearly $200 million.

12

13
12

$20

Hardware deal volumes

and values decreased in
Q3 2015 after several
large transactions in the
prior quarter.

14

$30
$25

10

11

10

$15

8
6

7
$10

4
4

$5

$0

$2.4

$2.9

$5.4

$36.9

$5.9

$10.2

$9.1

$11.0

$1.2

$9.9

$3.7

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

0
Deal Value

Deal Volume

Average and median values ($M) / volumes trended over 3 years:

2013

Q1

Q2

Q3

2014

Q4

Q1
Average Deal

Public takeaways:

Q2

2015

Q3

Q4

While the magnitude of any

declines were relatively
minimal, approximately
three-fourths of companies
saw a decrease in revenue and
EBITDA multiples.

Q2

Q3

Hardware public company multiples (median)

3.0

The median EBITDA multiple

remained relatively flat
during Q3 2015, while the
revenue multiple declined to
the lowest level since early2013.

Q1

Median Deal

2013

2014

16

2015

14

2.5

12
2.0

11.5x
10.0x

12.1x

12.1x
11.3x

10.7x

10.8x

11.2x

10.9x

11.1x

11.1x

1.5

10

8
6

1.0

4
0.5

2
0.9x

1.0x

1.2x

1.4x

1.5x

1.4x

Q1

Q2

Q3

Q4
Q1
Q2
EV / Revenue

1.2x

1.3x

1.3x

1.2x

1.0x

Q3
Q4
EV / EBITDA

Q1

Q2

Q3

0.0

Source: Capital IQ

US technology deals insights | Q3 2015 update

11

IT services
Closed deal values ($) / volumes trended over 3 years:

2013

$9

IT Services trends:

2014

2015

25

21

$8

Deal volumes declined

in Q3 2015, but
continued to remain
more active than most
quarters over the past
two years.

Deal values continued

to remain centered on
the middle market
during Q3 2015, despite
being a sector that has
historically leaned
toward small and large
deals.

Average deal values

declined to $172 million
in Q3 2015 due to a lack
of billion-dollar deals,
while median deal
values increased to
$180 million.

20

$7
$6

$in billions

15
15

$5
11

12

10

$4

11

10

8
$3
5

$2

10

6
5

$1

$0.2

$0.5

$3.9

$3.2

$4.9

$2.9

$2.7

$5.2

$7.7

$4.5

$1.9

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

$0

0
Deal Value

Deal Volume

Average and median values ($M) / volumes trended over 3 years:

2013

Q1

Q2

Q3

2014

Q4

Q1
Q2
Average Deal

Public takeaways:
Revenue and EBITDA
multiples have remained flat
over the last year.

Consistent with the broader

tech sector, median
multiples for companies
>$1.0 billion market cap
were higher than sub-$1.0
billion size companies.

12

Q3
Q4
Median Deal

Median revenue multiples

for IT Consulting companies
were in line with Data
Processing and Outsourced
Services companies, at 1.7x
and 1.5x respectively.

Q1

Q2

Q3

IT Services public company multiples (median)

3.0

2015

2013

2014

16

2015

14
12.5x

11.8x

2.0

11.0x

10.9x
9.6x

13.1x

12.5x

12.9x

11.5x

12
10

10.3x

9.8x

8
6

1.0

4
2
1.6x

1.5x

1.7x

1.7x

1.8x

1.6x

Q1

Q2

Q3

Q4
Q1
Q2
EV / Revenue

1.4x

1.6x

1.7x

1.8x

1.7x

Q3
Q4
EV / EBITDA

Q1

Q2

Q3

0.0

Source: Capital IQ

US technology deals insights | Q3 2015 update

Semiconductor
Closed deal values ($) / volumes trended over 3 years:

2013

$10

Semiconductor trends:

2014

2015

16

$9

While deal volumes

have remained
relatively flat for more
than two years, values
in the sector are volatile
in any given quarter.
Lacking large
consolidation deals
during Q3 2015,
semiconductor deal
values have remained
depressed.

The median
Semiconductor deal
value of $52 million was
notably below that of an
average quarter in 2013
or 2014.

Despite closed deal

values, deal
announcements in the
Semiconductor sector
continue to point
toward consolidation
amongst industry
leaders.

14

$8

14

12

$7
10

$in billions

$6

$5

9
8

$4

$3

6
4

$0.5

$2
$1

$4.7

$3.8

$1.6

$0.3

$9.0

$5.6

$2.5

$5.6

$1.1

$1.5

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

$0

0
Q1

Deal Value

Deal Volume

Average and median values ($M) / volumes trended over 3 years:

2013

Q1

Q2

Q3

2014

Q4

Q1
Q2
Average Deal

Public takeaways:

2015

Q3
Median Deal

Q4

A significant number of
Semiconductor companies
exhibited declining revenue
and EBITDA multiples in Q3
2015.
Scale continues to matter as
sub-$1.0 billion market cap
companies traded at a 1.2x
lower average revenue
multiple than the >$1.0
billion companies.

Q2

Q3

Semiconductor public company multiples (median)

3.0

While the median revenue

multiple has stayed relatively
flat over the past few
quarters, the median
EBITDA multiple continues
to decline, dropping 2.0x in
Q3 2015.

Q1

2013

2014

16

2015

14

2.0

12.2x

12.4x

13.3x

12.9x
11.7x

12.4x

12.3x

13.4x
12.5x

12.1x

10.5x

12
10

8
6

1.0

4
2
1.6x

1.7x

1.9x

2.0x

2.1x

2.3x

Q1

Q2

Q3

Q4
Q1
Q2
EV / Revenue

2.1x

1.9x

2.0x

2.0x

1.8x

Q3
Q4
EV / EBITDA

Q1

Q2

Q3

0.0

Source: Capital IQ

US technology deals insights | Q3 2015 update

13

Focus article

Evolving landscape: Semiconductor industry

The recent explosion in M&A activity in the semiconductor
industry follows a larger industry trend within the overall
Technology sector. Many of the factors affecting the
Technology sector, such as maturing markets and associated
revenue-ASP stresses, have also come into play in the
semiconductor sector. But a closer look shows that the
specific M&A route chosen by the semiconductor companies
involved in transactions varies based on three key factors:
market segment focus, the growth rate of the market segment
and the size of the company. These three key factors
determine whether the underlying factor is a desire to access
new markets/customers, increase bargaining power in
existing markets or a need to close technology/product
portfolio gaps.
We expect specific kinds of M&A activity to continue to occur
in each of the key semiconductor market verticals:
Automotive, Industrial, Consumer, Computing and
Communications due to the influence of the above identified
three factors. Semiconductor companies should try to take
advantage of the unique dynamics existing currently and
explore opportunities to transform their businesses through
inorganic means where possible.

The overall profitability in the semiconductor industry is also

expected to likely decrease significantly in the future. ASPs
are smaller and decreasing in many of the major end
segment/applications that are driving adoption of
semiconductor chips e.g. wearables, mobile devices.
Besides the squeeze from ASP and Volumes, as shown in
Exhibit 2, the cost of product development from design,
process and fabrication perspectives have also increased
significantly due to several factors. Though the larger shift
towards commoditization of hardware and increase in value
of software is not directly evident all across the
semiconductor industry, the influence of the emerging
megatrends has had an impact on semiconductor industry
product development and offerings.
Exhibit 2: Key operational challenges faced by the
semiconductor industry
Revenue

Costs

Slowing revenue growth

Increasing product cost*

pressure
- Fab costs: 168%

- CAGR 1985 2012: 10.1%

- CAGR 2012 2018F: 4.3%

- Process dev costs: 225%

Recent Semiconductor trends

- Chip design costs: 341%

The semiconductor industry is in the midst of a period of

major re-alignment. The unique factors driving M&A activity
in the overall Technology sector are particularly visible in this
industry. As observed in the technology sector more broadly,
both the quest to improve profitability and form cross-value
chain ecosystem partnerships has spurred consolidation in
the semiconductor industry.
The semiconductor industry has continuously exhibited a
declining growth rate based on a 10-year rolling average from
1984 - 2013. Long-term growth has declined from around
15% annually, prior to the year 2000, to around 5% today.
Gartner expects this low-single-digit growth rate for the
industry to continue for the foreseeable future1.
Exhibit 1: Semiconductor 10-year growth rate and
trend line, worldwide, 1984-2013

2012

2008

2004

2000

1996

1992

1988

1984

25
20
15
10
5
0

Source: The McClean Report 2015, IC Insights

14

US technology deals insights | Q3 2015 update

Addressing new
applications, markets,
and customers

Managing an increasingly
complex ecosystem

Lower ASP for new

segments

Increasing complexity of
hardware-software codevelopment

* Morgan Stanley estimate of the cost increase in shift from 65nm to 20nm

Source: PwC analysis

The increasing requirement for offering enhanced value

added services to be competitive has led to a situation where
many semiconductor chipmakers are more frequently
required to co-develop hardware and software solutions,
increasing the complexity and thus development costs.
Recent requirements to establish ecosystem partnerships
with players across the value chain has required
time/commitment and also led to higher costs for
chipmakers. This necessity to form ecosystem partnerships is
especially apparent in the markets related to the emerging
Internet of Things (IoT) phenomenon.

Gartner, Forecast Overview: Semiconductors, Worldwide 2014 Update, 30

July 2014

Key Drivers of Semiconductor M&A

The unique dynamics in the semiconductor industry from an
M&A perspective can be understood by looking more closely
at the market size growth rates of the major segments:
Automotive, Industrial, Communications, Computer, and
Consumer. The expected growth rates of these market
segments for 2014-2019F are shown in Exhibit 3.
Exhibit 3: Growth trends for analog device sales in
different market segments
Market segment

5 Yr CAGR
(2014-2019F)

Type of
market

Automotive

+11.2%

Growing

Industrial

+7.3%

Communications

+7.2%

Computer

+0.8%

Consumer

+0.4%

range of applications has diminished the market power of

semiconductor companies while working with these
customers.
Due to all of these reasons, four factors have created
conditions ripe for consolidation in the Automotive,
Communications, and Industrial segments:
1.

Technology/portfolio gap closure

2.

Access to new markets and/or customers

3.

Resource augmentation (to enable scaling)

4.

Increased market power

Exhibit 4: M&A trends among growing

semiconductor market segments
Slowing

Source: The McClean Report 2015, IC Insights

Market
segments

Company size

Automotive
Industrial
Communications

Large

Small

The size and scale of the companies involved influence

whether an acquisition of a smaller competitor or a merger
of equals takes place. Historically, a distinct relationship
exists between the size of the company, the type of acquisition
event and the underlying factors.
Automotive, Industrial and Communications segments will
likely grow at a significant clip in the near future. Consumer
and Computer segments are expected to slow down. Both the
growing and slowing market segments have shown significant
M&A activity but the underlying reasons are different.
Growing semiconductor market segments
Segments like Automotive, Communications, and Industrial
are poised for significant growth in the near future.
From the incorporation of increasingly sophisticated
controlling electronics in automobiles to the advent of
connected cars and connected devices, the increase in
semiconductor content in automobiles and smart appliances
has and will likely continue to explode over the next few
years. Similarly, in the traditional Industrial segments, the
advent of more advanced control and monitoring equipment
and the Industrial IoT phenomenon has driven an upsurge in
semiconductor adoption in that sector.
The high growth rate in these segments has caused a large
number of semiconductor chipmakers to focus on these
segments leading to considerable jockeying for position and
competitive advantage. Given the large number of
applications in these growing segments, no semiconductor
company has been able to dominate either the Automotive,
Communications, or Industrial segments both from a product
capability or market share perspective. The fragmentation of
market share and the inability to address a comprehensive

Type of
M&A activity

Acquisition of
smaller competitors

Merger of equals

Underlying factors

1. Technology/Portfolio gap closure

2. Access to new markets/customers

1. Resource augmentation
2. Access to new markets/customers
3. Increased market power

Source: PwC Analysis

Slowing semiconductor market segments

The Consumer and Computer segments which historically
have led the way in adoption of semiconductor devices show
all the classic signs of a maturing market with low to negative
growth rates over the next 5 years. Apart from being
associated with a high degree of cyclicality, these markets are
associated with a stable set of customers with set buying
patterns who look at most semiconductor chips as commodity
components. The jockeying for position and competitive
advantage is even more pronounced in the slowing market
segments. As in the growing segments, no semiconductor
company has been able to dominate the Consumer or
Computing segments both from a product capability or
market share perspective. Predictably, this has led to a
situation where a large number of chipmakers focus on a
limited set of applications creating pricing and profitability
pressures and leading to situations ideal for consolidation.
The same underlying factors and size factors come into play
in determining the type of M&A activity that occurs though
the factors seem to be common across companies of all sizes.
One key difference is that in the case of the slowing market
segments, larger players tend to focus on deals that help to
acquire a more comprehensive product portfolio, with an eye
on increasing market share and power and using that to
commandeer better pricing.

US technology deals insights | Q3 2015 update

15

Exhibit 5: M&A trends among slowing

semiconductor market segments
Market
segments

Company size

Large
Consumer
Computer
Small

Type of
M&A activity
Acquisition with/
Merger of players
with complementary
portfolios

Merger of equals

Underlying factors

1. Resource augmentation
2. Access to new markets/customers
3. Increased market share
4. Increased market power

prefer to obtain an end-to-end portfolio of core enabling chip

products from one source rather than make best of breed
decisions, semiconductor chip makers targeting these
segments for Internet of Things applications would definitely
look to close any gaps in their existing product portfolio. We
expect these portfolio gap closures to be made primarily
through inorganic, acquisitive methods given the longer time
and more expensive effort associated with building product
organically in-house.

Source: PwC Analysis

How should semiconductor companies take

advantage of the current boom in M&A

Impact of the Internet of Things on semiconductor

M&A trends

Semiconductor companies should carry out a strategic review

of their options to determine business value drivers, compare
these with key competitors and establish a comprehensive list
of strategic imperatives e.g. scaling the company, entering
new markets, closing portfolio gaps, increasing market share
and power, augment resources. Based on the defined
imperatives, companies should identify potential merger or
transformational acquisition opportunities and estimate
possible returns from a potential deal. Companies should also
conduct review of their existing portfolio and identify
growth/rationalization opportunities with an eye on divesting
non-core products and focusing on core opportunities.

IoT represents a collection of opportunities that will have an

impact across all segment market segments. Semiconductor
companies, who look at IoT as a potential inflection point
they can leverage for increasing their revenue growth,
function as enablers of services and technologies in the over
all IoT stack by providing types of core enabling chip
products: microprocessors, microcontrollers, wireless and
sensors/actuators.
Many semiconductor companies are beginning to embrace
IoT to drive new revenue and growth models. As part of their
efforts to establish and expand their footprint in the IoT
ecosystem, semiconductor companies are looking to partner
with companies across the ecosystem to develop joint Go-toMarket strategies and create IoT specific platforms and
solutions. The key to such efforts will be the ability to offer a
comprehensive portfolio of products that encompass the four
core enabling chip products listed above. Many of the major
semiconductor chipmakers involved in the IoT space do not
have a comprehensive portfolio of products thus increasing
the chances for potential M&A.
What to expect in the near-term and options for
semiconductor companies
The profitability and growth challenges that confronted
semiconductor companies during 2014 will likely continue to
drive significant M&A activity in the semiconductor
segments. Semiconductor chipmakers focused on addressing
applications in the slowing market segments will especially be
on the lookout for opportunities to increase their market
share and power with an eye on reducing pricing pressures
and increasing profitability. In the growing market segments,
opportunistic mergers and acquisitions to gain access to new
technology, markets or customers will provide the impetus for
deals to happen. The analog and mixed signal market which
has multiple players focused on niche applications within the
Automotive and Industry space could continue to be the main
arena for M&A activities to occur in 2015.
The Internet of Things will likely continue to provide an
opportunity for expanding their revenues again primarily in
the Automotive and Industrial segments. Since many of the
potential customers in these two growing segments would

16

US technology deals insights | Q3 2015 update

Semiconductor companies should remember that pursuing

business growth through inorganic (M&A) methods is an
attractive but inherently risky option. Though both mergers
(of similar sized companies) and acquisitions (of smaller
companies) come with their pre-and post-deal integration
and synergy achievement challenges, mergers of equals are
typically more risky due to culture mismatch between
organizations and a struggle for influence between the two
companies.
Decision-making, especially at the mid-management level, is
confused and slows down in such cases. Achieving consensus
on operational considerations such as product development
and portfolio management processes, customer account
coverage and in rationalizing R&D and manufacturing
footprints becomes very difficult.
Successful M&A integration and deal synergies will require a
focused effort that involves identification and execution on
value drivers and business risks. In fact, only 35% of tech
companies achieved their operational goals2. The value
drivers impacting the success of a deal will range across a
large number of focus areas such as: organization structure,
executive communications, governance, roadmaps, product
development/R&D, sales & marketing, operations and supply
chain, People and Change Management (HR), IT capabilities,
Finance and Tax. Building deal specific transition and
integration blueprints for each of the identified value drivers
will be a key factor in enabling success.

PwC 2014 M&A Integration Survey: Looking beyond the here and now

About PwCs
Deals Practice
Author
Tom Erginsoy, Director,
PwCs Deals Practice
408 817 7950
[email protected]
Focus Article
Rakesh Mehrotra, Principal,
US Semiconductor Advisory
Leader
408 817 3878
[email protected]
Amit Verma, Principal
PwCs Deals Practice
949 437 5387
[email protected]

Smart deal makers are perceptive enough to see value others have missed, flexible
enough to adjust for the unexpected, aggressive enough to win favorable terms in a
competitive environment, and circumspect enough to envision the challenges they will
face from the moment the contract is signed. But in a business environment where
information can quickly overwhelm, the smartest deal makers look to experienced
advisors to help them fashion a deal that works.
PwCs Deals Practice can advise technology companies and technology-focused private
equity firms on key M&A decisions, from identifying acquisition or divestiture candidates
and performing detailed buy-side diligence, to developing strategies for capturing postdeal profits and exiting a deal through a sale, carve-out, or IPO. With more than 14,900
deals professionals in over 120 countries, we can deploy seasoned teams that combine
deep technology industry skills with local market knowledge virtually anywhere and
everywhere your company operates or executes transactions.
Although every deal is unique, most will benefit from the broad experience we bring to
delivering strategic M&A advice, due diligence, transaction structuring, M&A tax, merger
integration, valuation, and post-deal services.
In short, we offer integrated solutions tailored to your particular deal situation and
designed to help you extract peak value within your risk profile. Whether your focus is
deploying capital through an acquisition or joint venture, raising capital through an IPO
or private placement, or harvesting an investment through the divesture process, we can
help.
For more information about M&A and related services in the technology industry, please
visit www.pwc.com/us/deals or www.pwc.com/technology

About the data

We define M&A activity as mergers and acquisitions where targets are US-based
companies acquired by either US or foreign acquirers or foreign targets acquired by US
technology companies. We define divestitures as the sale of a portion of a company (not a
whole entity) by a US-based seller.
We have based our findings on data provided by industry-recognized sources.
Specifically, values and volumes used throughout this report are based on completion
date data for transactions with a disclosed deal value greater than $15 million, as
provided by Thomson Reuters as of September 30, 2015, and supplemented by additional
independent research. Information related to previous periods is updated periodically
based on new data collected by Thomson Reuters for deals closed during previous
periods but not reflected in previous data sets. Unless otherwise noted, all data and
charts included in this report are sourced from Thomson Reuters.
Because many technology companies overlap multiple sectors, we believe that the trends
within the sectors discussed herein are applicable to other sectors as well. Technology
sectors used in this report were developed using NAIC codes, with the semiconductor
sector being extracted from semiconductor and other electronic component
manufacturing codes by reference to SIC codes. In certain cases, we have reclassified
deals regardless of their NAIC or SIC codes to better reflect the nature of the related
transaction.

www.pwc.com/deals
www.pwc.com/technology
2015 PwC. All rights reserved. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC
network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. This content is for general
information purposes only, and should not be used as a substitute for consultation with professional advisors.

For a deeper discussion on technology deal considerations, please contact one of our
practice leaders or your local Deals partner:
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PwCs Deals Practice
646 471 2622
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18

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Partner, PwCs Deals Practice
312 298 3033
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US technology deals insights | Q3 2015 update

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