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May 16, 2016

Big Data Deals Sustain Tech M&A Activity

Big data analytics drove an estimated 70 percent of merger and acquisition activity during the first quarter of 2016, according to a new survey.

EY (formerly Ernst & Young) also reported last week that technology sector deal making “stabilized” during the first three months of this year following the M&A boom of 2015. New York-based EY said Chinese companies were the biggest spenders from January to the end of March with 34 deals, doubling the volume from a year ago to an aggregate disclosed value of $15.1 billion.

While the volume of technology deals related to the Internet of Things (IoT), healthcare information technology and cyber security continued to grow at slower rates, big data continues to lead the way. EY reported that big data analytics deal volume soared 72 percent year-on-year while the value of those deals jumped 82 percent over the same period.

“Digital disruption is not standing still for global economic uncertainty, so neither is global technology M&A,” Jeff Liu, head of EY’s Transaction Advisory Services, noted in a statement.

“Big data analytics is a perfect example [of digital disruption] as tech and non-tech companies alike seek new data sources to feed their analytics capabilities, especially where machine-learning technologies are involved.

“We expect the waves of M&A and new partnering trends to continue,” Lui added.

Despite a relatively strong appetite for big data analytics startups, especially those focused on key automation technologies like machine learning, observers continue to warn of a venture capital “bubble”. How that might affect technology M&A deal making remains unclear, but EY noted that M&A “aggregate value growth” fell in sectors like cloud and software-as-a-service, cyber security and connected cars.

Liu expects growing “macroeconomic uncertainty” to suppress deal valuations a bit this year, but adds that “massive digital transformation caused by disruptive cloud, mobile, social and big data analytics technologies is just beginning.” He predicted that “non-tech” companies will continue to acquire big data and related platform technologies as they seek to leverage growing data volumes.

Meanwhile, the EY survey found that Chinese and other global dealmakers targeted U.S. companies in 72 of 204 “cross-border” deals not involving a U.S. buyer. Those deals accounted for $10.3 billion in disclosed value during the first quarter of this year. Fourteen deals topped $1 billion, and three were valued at more than $5 billion.

The survey also identifies an increasingly “cross-industry blur” in which non-technology companies are moving to acquire technology capabilities like big data analytics as they seek to compete in markets like retail and financial services.

The M&A trends also illustrate the growing importance of emerging technologies like machine learning designed to fill the emerging data science gap. Acquiring these new capabilities would for example allow business analysts with minimal training in big data techniques to make use of a growing number of automation tools.

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