Considerably Less M&A Activity in the US IT Sector

In the past few years the IT sector saw a significant decline in global mergers and acquisitions (M&A). This trend is particularly pronounced in the USA, the most important market for both IT giants and Internet start-ups. This is the result of recent calculations by the Centre for European Economic Research (ZEW) based on the Zephyr database of Bureau van Dijk.

Since 2011, the number of transactions in the USA have steadily declined on an annual basis. In 2015, only 521 transactions were recorded. This marks a decline of 61 per cent compared to 2011. The same holds for the transaction volume, which has seen declines each year, except for 2012 and 2014. 2015 saw a transaction volume of merely 20.48 billion euros – the same level as in the crisis year of 2009. The exceptionally high transaction volumes of 2012 and 2014 were merely the result of individual large transactions, such as the 15 billion euro takeover of instant messaging service Whatsapp by US giant Facebook.

"The negative trend observed in the US M&A market may be related to a new scepticism about young IT start-ups," explains Niklas Dürr, researcher in ZEW's Research Group "Competition and Regulation". Many young companies find themselves struggling with fierce competition and fail to fulfil the hopes placed in them. "It is difficult for many start-ups to surpass the break-even point so they can start making a profit," says Dürr.

In addition, several young Silicon Valley-based companies with extremely high valuations are faced with major challenges. A good example is the transportation service provider Uber, which recently had to retreat from the Chinese market regardless of its current 70 billion dollar valuation. "In view of such sobering developments, IT investors start to worry again whether companies might be overvalued," says Niklas Dürr. "There is a growing fear that the bubble might burst, which deters investors from acquiring new companies."

For more information please contact

Niklas Dürr, Phone +49(0)621/1235-368, E-mail duerr@zew.de