Tech and telecom M&A values crested a new high-water mark as the third quarter came to a close, with some advisors cashing in on the boom in activity.
The industry saw about $1 trillion worth of deals announced in the first nine months of the year, the highest total of any prior three-quarter or full-year period, according to 451 Research. That puts the year on pace to double the previous annual spending record of $626.07 billion, set in 2020.
Though deal volumes will land in range of or lower than prior years, the surge in aggregate deal value is due to unprecedented valuation growth.
There were 3,120 handshakes in the sector for the year through Sept. 29, compared to 4,057 deals in 2020 and 3,735 in 2019. But technology and telecom valuations, tracked as the target's enterprise value over trailing 12-month revenue, have soared to 7.2x on average this year. By comparison, average valuations had stayed well under 3x since 2002, according to 451's estimates.
The country's biggest banks are collecting hefty fees off the hot market, with advisory units from The Goldman Sachs Group Inc., JPMorgan Chase & Co. and Morgan Stanley representing the most technology and telecom deals for the year to date.
Both Goldman and Morgan Stanley appeared on one of the world's largest technology transactions, financial technology company Square Inc.'s $29 billion acquisition of buy-now-pay-later processor Afterpay Ltd. Goldman also advised on Microsoft Corp.'s $19.70 billion takeout of Nuance Communications Inc. Adviser fees were not disclosed on the Square transaction, and fees for Goldman were not disclosed on the Nuance deal. However, the ninth-most-active adviser, Evercore Inc., advised the seller on the Nuance transaction, and it disclosed fees of $63.0 million and a $7.0 million fairness opinion fee, according to S&P Capital IQ.
Zoom Video Communications Inc.'s $14.70 billion acquisition of Five9 Inc. was another one of the year's top deals, prior to its Sept. 30 termination. Goldman had again offered advisory services, along with Qatalyst Partners LP, a boutique banker that did not land in the top 10 advisers of 2021 thus far for technology and telecom based on number of deals. But the firm has advised on some of the largest transactions, consulting the seller on Square's Afterpay deal.
Spurred by an excess of dry powder and a very accommodating lending environment, private equity buyers are enjoying their own superlative year for technology and telecom transactions, already hitting an all-time high of $150 billion in spending, according to 451. Thoma Bravo LP landed one of the top industry deals of the year with its $10.33 billion acquisition of Proofpoint Inc., and again, Morgan Stanley and Goldman showed up to the advisory table. Morgan Stanley reported $62.0 million in advisory fees and $16.0 million for a fairness opinion for its work with the seller on that transaction.
451 Research is part of S&P Global Market Intelligence.