The aggregate value of global technology mergers and acquisitions (M&A) increased 8% sequentially and 22% year-on-year (YOY) toUS$56.4bin the third quarter of 2011, even as M&A value declined in other industries, according toErnst & Young's Global Technology M&A Update, July – September 2011.Aggregate deal value (of deals with disclosed value) was the highest total value for any calendar quarter since 2007, before the global downturn.

Deals involving smart mobility and business analytics came on strong in 3Q11, driving two deals each with values aboveUS$10b— the first time two deals of that size occurred in the same quarter since 1Q 2000. Hundreds more transactions were driven by cloud computing, information security, social networking, online and mobile games, health care IT and internet and mobile video. Many deals combined two or more of these trends.

Growth in the aggregate value of private equity (PE) transactions drove the overall sequential increase in value. PE aggregate value increased 82% sequentially toUS$14.6bin 3Q11 and increased 86% YOY. PE firms contributed 6 of the 11 3Q11 deals valued aboveUS$1b. Of note, the big-ticket PE deals in the third quarter occurred across a broad spectrum of technologies targeting different industries, including health care, financial services and education.

As they did in 2Q11, big-ticket deals dominated in 3Q11, with the top 11 deals totalingUS$40.1bin value, or 71% of all disclosed in the quarter. Average values per deal also climbed – 14% over the previous quarter and 26% YOY – toUS$221m, the highest level in 11 years.

Joe Steger, Global Technology Transaction Advisory Services Leader at Ernst & Young, says:

"In the face of market volatility and macroeconomic uncertainties that are dampening other industries, the megatrends driving global technology M&A so far have continued to push deal values higher. The increase in values is due primarily to the period of hyper-innovation that technology companies are experiencing. Technology companies have been delivering rapid waves of innovation around smart mobility, cloud computing, business intelligence/analytics, social networking, information security and other new technologies. Remaining competitive and transforming that innovation into economically actionable products and services often requires significant M&A activity."

"Big data" looms large

One focus of technology M&A in 3Q11 was "big data." As Steger explains, "Business systems, mobile applications, social networking platforms and smart metering systems are generating an ever-increasing mass of data that is getting harder to analyze as it grows exponentially in size. Companies are struggling with what has come to be known as the 'big data' problem. Technologies that help companies make sense of it all can provide important customer information and insights."

There were roughly two dozen deals in this business intelligence/analytics category in the third quarter, including one of the deals aboveUS$10b. The growth in business intelligence/analytics deals appears to be extending into the fourth quarter as well.

Top trends include integration

Cloud computing, smart mobility, information security and social networking continue to dominate deal-driving trends. There were multiple 3Q deals involving security technologies together with cloud, mobile or both. "As time passes, we're also seeing technologies related to these technology trends integrate with each other – and with just about everything else," Steger says.

Deal volume ticks down – again

Deal volume dipped 2% for the second consecutive quarter, to 759 deals in 3Q11. "This year's deal volume plateau comes after a string of eight consecutive quarters without a volume decline from 1Q09 to 1Q11," Steger says. To put it in context, published reports indicate that 3Q11 deal volume for all industries declined far more – by about 9%, compared with the 2% technology decline. Deal volume level has remained in a range between 700 and 800 deals in each of the last five quarters (beginning with 3Q10). This may be the technology industry's near-term naturally sustainable level, according to the report.

Cross-border slowdown

Cross-border deals declined 11% each in volume and value in 3Q11, compared with 2Q11. This quarter represented one of the occasional pauses in a generally upward trend that has seen cross-border deals increasing as a percentage of the volume and value of all deals since 2009.

Outlook clouded by global trends

While global technology M&A provided a counterpoint to the global macroeconomic malaise prevalent in the third quarter, the question remains whether such robust values can be maintained in the face of uncertainty and extreme equity market volatility. "Although macroeconomic volatility makes it hard to predict whether M&A transactions will continue to grow or take a pause in the short term, the multiple disruptive technology megatrends occurring now and driven by smart mobility, cloud computing and social networking, make long-term M&A growth a relatively safe bet," says Steger.