Tech M&A frenzy fuelled by fire sales

IDC claims troubled businesses looking for a quick sale have seen global M&A levels soar, but business valuations plummet

Struggling businesses taking part in quick "fire deals" have led to a surge in merger and acquisition (M&A) activity in 2012, according to IDC, which claims that while sales of firms rose, valuations dropped.

In the analyst's 2012 Tech M&A and IPO Analysis Report, it claimed that last year, the number of deals globally topped 3,800, up 14.2 per cent compared to 2011.

Despite the boost, the firm reckons the total value of the disclosed deals dropped by 10.8 per cent annually to $211bn (£139bn).

IDC puts the trend partly down to a number of companies selling off assets in order to refocus their businesses as well as a boom in so-called "fire deals" involving troubled companies settling for a lower valuation in order to make a quicker sale.

An increase in private equity (PE) firms looking to bag a bargain by capitalising on lower valuations also drove the hike, added the analysts. PE-backed M&A activity rose 27.8 per cent annually, accounting for 230 deals worth a total of $43bn.

Ryan Patterson, manager of IDC's Global IT Advisor and Private Vendor Watch Service, claimed the market is still healthy.

"The opposing trend between deal volume and deal value is not surprising [but] the current levels of M&A activity are far from what was experienced during those gloomy years. There are plenty of reasons to believe that the market will maintain a healthy pace in the months ahead," he said.

Another driver of M&A activity growth was companies' investment in cloud, mobile, big data and social media. The firm claimed that deals in the area accounted for 18.6 per cent of all M&A deals for the year, and expects the trend to continue in the future.