Technology M&A – Trends for 2013 - #1: Big Data Analytics
Technology M&A – Trends for 2013
The global M&A outlook for 2013 as a whole appears uncertain. Remark and mergermarket's "Doing the Deal" study shows less than 50% of Europe's leading dealmakers expect a rise in M&A activity over the coming 12 months, with lingering uncertainty and lack of confidence as a result of austerity measures on the agenda of most European governments.
Turning specifically to the outlook for technology M&A, Ernst & Young's global technology M&A report for November 2012 identified a widening gap between buyers' and sellers' expectations for tech M&A valuations and that, in light of the macroeconomic uncertainty, suggested that large tech M&A deals were giving way to smaller, more strategic transactions "driven by long term megatrends that are generating disruptive innovation in technology and leading to technology enabled innovation in other industries". It is likely that technology M&A in the first half of 2013 will continue to be driven by those same factors which drove activity in the latter stages of 2012, principally (i) big data, (ii) cloud computing, (iii) smart mobility and (iv) social networking.
The first of these 4 short articles focuses on Big Data, looking back at some of the deals from 2012 and potential activity for the coming 12 months.
Trend #1: Big Data Analytics
Big Data (i.e. data sets of a size that commonly-used software tools are unable to adequately capture and analyse within tolerable timeframes) and the challenge to analyse this data in real time continues to prove a major trend in technology M&A.
The growth in real time consumer behaviour through smart devices, apps, mobile payments, GPS, social networking, together with sensor networks and other data generating sources has led to a plethora of data, so much so that IBM reckons that we create 2.5 quintillion bytes of data, every day - so that 90% of the data in the world today has been created in the last two years alone. A recent study by Digital Universe in December 2012 however revealed that less than 1% of the world's data is analysed. Deciphering these huge data sets for patterns and trends, both internally within business organisations to maximise efficiency, and externally to evaluate consumer habits, holds enormous potential for cost savings, revenue growth and targeted marketing to consumers.
It is expected that more companies will implement Big Data solutions to help analyze website traffic and to gain a deeper understanding of their customer base by identifying key trends in online viewing and purchasing behaviors. The potential benefits to a company's bottom line are intriguing; it is thought that the effective use of Big Data by retailers could lead to a 60% potential annual increase in operating margins. It has also been said that Big Data could add £216 billion to the UK economy over the next five years (provided of course there is sufficient analytical skills in the workplace to meet demand). Moreover, Conservative think tank Policy Exchange says the public sector could cut costs by £33bn through wider and better use of big data analytics.
Whilst HP's acquisition of Autonomy in 2010 for $11.3 billion, of which HP has since written off $8.8 billion, may be the current elephant in the room, various deals of note throughout 2012 in this space support the view that Big Data will continue to be a key driver behind technology M&A in 2013. 2012 deals include VMware’s purchase of Cetas Software and Dell's acquisition of Quest/Kitenga. WANdisco's acquisition of Altostor was also strategically interesting, enabling WANdisco to achieve a quicker route to market for launching products on the Hadoop platform. Bangalore based IT company MphasiS also recently acquired US based data analytics company, Digital Risk, in December 2012 for US$200 million in an all-cash deal.
Its likely that there will be many different companies which may be the target of M&A activity in this field, from the software analytics companies to data sensor manufacturers and new breed data storage centers, to those companies which address the big problem with Big Data: Security. Indeed, data is worthless if the executive looking at it does not trust the data he is looking at. The Digital Universe study suggested that over 80% of the world's data is unsecured. Companies providing innovative security solutions in this space should be widely sought after.
There is however concern that the deep technical and analytical skills needed to analyse Big Data do not yet exist in the workplace to support expected growth. Given this current shortage in skills, those companies which allow businesses to easily gain meaningful insight from massive volumes of captured data (structured or unstructured) through the use of innovative and cost effective tools will be of particular interest to acquirers. Of particular note, watch out for businesses providing solutions in the healthcare, entertainment, media, manufacturing and financial services sectors, which are tipped to be the key Big Data market segments which will grow fastest in 2013.
The underlying technology enabler for Big Data to be captured, stored and analysed is also in a state of flux. With Hadoop having gone through major fragmentations with many incompatible versions of the framework currently in play, there is also potential for a new innovative framework to come to the fore in the Big Data space, or indeed those companies which can bridge all applications, all of which could spark acquisition interest.
Tim Bird is a Partner and Tom Ward is a Senior Associate at Field Fisher Waterhouse LLP, both specialising in mergers and acquisitions and venture capital. Field Fisher Waterhouse LLP is a leading technology, media and IP focused full-service law firm, with offices across Europe and in Palo Alto.