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In 2015, Technology Sector Clinches Biggest M&A Deals since 2000

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SMAC revolution sparks tech industry acquisitions

Owing to the revolution in SMAC—social, mobile, analytics, and cloud—the demand for storage and computing power continues to skyrocket. Legacy technology players are rapidly trying to adapt to the changing IT environment that has become highly influenced by SMAC. As a result, tech companies utilize acquisitions to either scale their operations, to develop domain expertise, or for growth prospects.

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Recent tech acquisitions

On June 1, 2015, Microsoft (MSFT) announced the purchase of 6Wunderkinder GmbH, the developer of to-do list app Wunderlist. On the same day, Intel (INTC) announced its acquisition of Altera Corporation for ~$16.7 billion in cash. On May 29, data center operator Equinix acquired Telecity Group PLC for $3.60 billion, or 2.35 billion pounds.

On May 26, enterprise cloud computing company Virtustream was acquired by EMC (EMC) for $1.2 billion in cash. Founded in 2009, Virtustream focuses on mission-critical applications such as SAP (SAP) business applications. It provides a software subscription option for SAP HANA through its xStream Cloud.

On May 28, one of the largest pure technology deals on record occurred when Avago Technologies (AVGO) acquired Broadcom for $37 billion.

On April 15, 2015, Nokia announced its intention to acquire France’s Alcatel-Lucent SA in an all-stock deal for 15.6 billion euros (or $16.6 billion). Nokia made this acquisition to build scale, allowing it to compete in the high-capacity wireless and wired data networks space.

Tech space sees heavy M&A activity

The above-mentioned acquisitions indicate that the technology sector is rife with M&A (mergers and acquisitions) activity. If you want broad exposure to tech industry stocks such as Microsoft, you can invest in the PowerShares QQQ Trust ETF (QQQ), which has 8% exposure to Microsoft.

According to finance software firm Dealogic, and as the above presentation shows, the global technology sector M&A volume stood at $143.4 billion in 2015 year-to-date (or YTD). This is a 30% increase from $110.2 billion seen in 2014 YTD. Since 2000, when the tech sector M&A volume stood at $249.1 billion, 2015 has the second highest YTD volume on record.

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Exponential data growth drives the digital economy

According to a May 29, 2015, Wall Street Journal article citing estimates from Cisco Systems (CSCO), Internet data traffic is expected to triple from 2014–2019. Data traffic is expected to increase nearly 168 petabytes, or ~168 billion megabytes, per month. Also, approximately 50% of this Internet traffic is expected to come from the devices other than traditional desktops. Increased Internet usage and accelerating broadband speed will fuel this trend of connected devices.

To join this trend of increasingly connected devices, Microsoft launched Surface Hub, which we will discuss later in this series. At the Windows 10 release event held in January 2015, Microsoft announced Surface Hub, its interactive intelligent whiteboard. Surface Hub is designed as a collaboration tool as well as a device that can be remotely connected to the Internet.

Another factor that played a prominent role in the M&A activity in the tech space is the decent cash reserves and low debt levels associated with these companies. Armed with cash and low debt levels, tech companies can seek out buyouts and acquisitions to attain domain expertise, a presence in niche markets, and healthy growth prospects.

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