Low And Slow Is The Tempo For Tech Deal Flow

by: 451 Research: Inorganic Growth

By Brenon Daly

Even with a few blockbuster deals we're starting off 2013 at a low level in the tech M&A market. Not only did the number of first-quarter transactions sink to its lowest quarterly total in more than three years, but the deals that did get done happened at a lower median valuation (see our full report on Q1 M&A activity).

The downtick was particularly pronounced at the top end of the market, which stands out all the more because of the record levels for the U.S. equity markets. For the 50 largest transactions announced so far in 2013, as listed in "The 451 M&A KnowledgeBase," we calculated the median price-to-trailing-sales valuation at just 1.9 times. That's a full turn lower than the full-year 2012 ratio and just half the level we saw in the pre-recession year of 2007.

A number of low-value deals have been putting pressure on the overall multiple. For example, the proposed buyout of Dell (DELL) is valuing the PC maker at just 0.4 times trailing sales. Even a combination of a higher bid, which is possible, and shrinking sales at Dell, which appears inevitable, won't change the multiple much.

Additionally, a steady stream of low-value divestitures has also contributed. United Business Media, Checkpoint Systems (NYSE:CKP), Sierra Wireless (NASDAQ:SWIR), Harmonic (NASDAQ:HLIT), and Telenav (NASDAQ:TNAV) are among the tech firms that have sold off parts of their businesses in divestitures valued at less than one times trailing sales so far in 2013.

Valuations of Significant* Tech Transactions

Year Equity Value-to-Sales Ratio
Q1 2013 1.9x
2012 2.9x
2011 3.2x
2010 3.4x
2009 2.6x
2008 2.4x
2007 3.8x

* Median multiple in 50 largest acquisitions, by equity value, in each of the periods. Source: The 451 M&A KnowledgeBase.