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Spending on digital M&A overtakes spending on traditional deals for the first time

Expenditure on digital and technology assets reached a new high last year of more than $258bn

Spending on digital and technology M&A has increased dramatically over the last five years, reaching a new high of $258bn in 2017 according to a new report by global law firm, Freshfields Bruckhaus Deringer LLP (‘Freshfields’). While deal volumes have remained steady, the study revealed that big businesses are now more willing than ever to pay large sums for digital and technology assets. Spending on these assets rose more than 600 per cent proportionally between 2009 and 2017. These findings signal the importance of digitization in today’s increasingly connected world and highlight the long-term potential returns that buyers expect to realise from assets such as semi-conductors, data or online platforms.

The report, which analyses the 26,744 deals announced by the S&P Global 1200 between 2009 and 2017, revealed the most digitally focussed countries. China and the Netherlands announced the most deals followed by Japan, Ireland, the US and Germany. As smaller economies, it is interesting that the Netherlands and Ireland are in the top five, although their figures are bolstered by the fact that many of their ‘national’ businesses are multinational holding companies attracted by the countries’ international outlook, supply of skilled workers and favourable regulatory regimes. Chinese companies were also the highest spenders ($1.47bn per acquisition) followed by companies from the US ($1.26bn).

The study also revealed the most valuable digital economies around the world. Unsurprisingly US businesses are the most sought-after by the S&P 1200 (46 per cent of activity, 71 per cent of value). A less predictable finding was that the UK ranked third in terms of volume of deals behind Japan, and in terms of deal value, the average UK digital or technology asset was acquired for more than $1bn, making it the only country other than the US to exceed this milestone.

Software was the most popular asset. A significant 39 per cent of acquisitions within digital and technology deals involved application software businesses, while the highest spending was on health tech assets ($192bn), with cognitive technologies and AI next in line. On an average deal value basis, the S&P 1200 are spending the most on the latter asset class, with each acquisition costing $2.3bn.

In addition to proving that digital and technology deals are more lucrative, the report also found that they are completed quicker than non-digital transactions. The 40 digital acquisitions valued at over $5bn for example completed an average of seven weeks faster than the comparable non-digital transactions. 

Natasha Good, a partner and the global head of the technology, media and telecoms group, at Freshfields, commented on the report: 

“It’s a great time right now for digital and technology M&A, with the world’s biggest companies focussing on staying competitive by enhancing their capabilities. 

“Deal-making in this space could become more challenging over the next few years, as foreign investment into certain technologies is facing increased levels of scrutiny from regulators. On Freshfields’s own major M&A mandates, we have seen an increase of more than 30 per cent in deals affected by public interest or foreign investment considerations . However, our experience shows that with careful planning, businesses can still navigate this changing environment.”

ENDS

Notes to editors:

About Freshfields Bruckhaus Deringer

Freshfields Bruckhaus Deringer LLP is a global law firm with a long-standing track record of successfully supporting the world's leading national and multinational corporations, financial institutions and governments on ground-breaking and business-critical mandates. Our 2,800 plus lawyers deliver results worldwide through our own offices and alongside leading local firms.  Our commitment, local and multi-national expertise and business know-how means our clients rely on us when it matters most.

About the report

The full report can be found here

Research methodology

Our research is based on primary analysis of 26,744 transactions announced by the constituents of the S&PGlobal 1200 between 1 January 2009 and 31 December 2017.

The S&PGlobal 1200 captures around 70 per cent of global market capitalisation, and therefore reflects many of the world’s biggest companies. It is a composite of seven headline indices: S&P 500® (US), S&P Europe 350, S&P TOPIX 150 (Japan), S&P/TSX 60 (Canada), S&P/ASX All Australian 50, S&P Asia 50 and S&P Latin America 40. 
All industries are represented in this study. 

A ‘deal’ is defined as any transaction in which the acquirer took an interest of 50 per cent or more in the target, increased its interest from below 50 per cent to above 50 per cent or acquired the remaining interest in an asset that it didn’t already own. 

Deals have been classified as ‘digital/tech’ if the buyer has targeted an asset to aid its digital transformation (based on analysis of the deal rationale, the acquirer's business and the target's technology), to bolster its existing digital offering, or to consolidate the market in a specific class of tech. 

Target categories have been assigned based on the technological assets of the target. Sectors and countries listed are as defined by Thomson. The status of the transactions (completed, pending and withdrawn) are accurate through Q2 2018. 

Source: Thomson, Freshfields analysis


The Freshfields team was led by: