M&A Activity Holds Steady In 2Q: Cloud Computing And Analytics Drive Transactions
Mergers and acquisitions activity in the defense and government services sector held steady in the latest second quarter, and is expected to remain robust for the remainder of the year as larger firms continue to seek out smaller companies operating in hot sectors to help offset expected federal budget cuts.
Among the contractors we track, there were 43 deals either announced or completed during the latest second quarter, off slightly from 44 deals announced in last year’s second quarter, and up significantly from the 29 transactions announced in the first quarter of this year.
M&A activity in the second quarter was driven by four deals which had valuations of over $1 billion, including SAP’s $4.3 billion purchase of cloud-based applications provider Ariba Inc., and CGI Group’s $2.6 billion acquisition of rival Logica PLC, an Anglo-Dutch firm which provides consulting, outsourcing and IT services to governments and companies across Europe.
Other significant purchases in the latest second quarter included Microsoft’s $1.2 billion acquisition of business social network Yammer, and Microsoft’s purchase of more than 925 patents and patent applications from AOL for $1.1 billion. After the purchase, Microsoft later sold 650 of those AOL patents to Facebook Inc. for $550 million.
Smaller deals in cloud computing and analytics fuel M&A activity in 2Q. During the latest second quarter, there were several M&A transactions announced in the cloud computing and big data/analytics sectors, and we expect these trends to continue moving forward.
On the cloud front, there were six deals reported in the latest second quarter which involved companies with cloud-related solutions, on par with the six cloud computing transactions announced in the first quarter of this year.
Notable deals (besides SAP/Ariba) include Dell’s purchases of Wyse Technology and Clerity Solutions Inc. earlier in the quarter, and Oracle Corp.’s purchase of Virtue, which operates a cloud-based social marketing and engagement platform, for $300 million. In another cloud-related transaction, Teradata agreed to acquire eCircle, which provides e-mail marketing and social media software in the cloud. This acquisition is expected to significantly enhance Teradata’s multi-channel marketing capabilities.
Overall, top-tier IT firms looking to expand their market share in the cloud computing sector is expected to continue moving forward, as the market is slated to see high-growth over the next several years. According to Deltek’s Federal Cloud Computing Services Outlook, 2012-2017 report, the demand for vendor-furnished cloud computing services by the U.S. government will increase from $734 million in fiscal 2012 to $3.2 billion in fiscal 2017, representing a compound annual growth rate (CAGR) of 34%. Given this expected growth, we expect top-tier IT firms to continue their foray into the cloud market, targeting smaller companies providing unique or distinctive solutions.
Elsewhere, M&A activity in the big data/analytics market was also strong in the latest second quarter, continuing its momentum from earlier in the year.
Always on the hunt for acquisitions in hot sectors, IBM seemed to have its eye on the analytics makret in the latest second quarter, making three acquisitions, including Varicent Software Inc., Vivisimo, and Tealeaf Technology Inc. IBM said it believes the analytics market presents a significant growth opportunity for the company with attractive profit margins.
Other notable deals in the analytics market in the latest second quarter included VMWare’s purchase of big data startup Cetas Software, Cisco’s acquisition of data analytics firm Truviso Inc., and CACI International’s buyout of Delta Solutions and Technologies Inc., which provides financial management and business analytics services to the federal government.
Overall, M&A activity in the big data/analytics market has been on the upswing over the past quarter or so, and we expect this trend to continue as top-tier IT firms continue to seek out small- and mid-tier firms providing unique or niche technologies within this hot sector.
Top-tier IT and contracting firms continue to lead the pack in M&A transactions. In the latest second quarter, technology titans such as IBM, Dell and Oracle continued to invest heavily in smaller companies in hot growth segments. IBM, Dell and Citrix Systems all made three purchases in the latest second quarter, while Oracle and Google each made two acquisitions.
Among the contracting heavyweights, Boeing acquired ISR provider Immedius, which provides software applications and services for managing and sharing information and learning content. Elsewhere, Northrop Grumman purchased M5 Network Security, an Australian provider of cybersecurity and secure mobile communications products and services, while General Dynamics picked up IPWireless Inc., which provides wireless broadband network equipment and solutions.