Despite the political uncertainty surrounding Brexit in late June, investors were encouraged by overall positive economic news and stable global interest rates. Major benchmarks showed large gains with the S&P 500 and NASDAQ up 3.3% and 9.7%, respectively. However, market volatility may return in Q4, particularly in the U.S. with the presidential election and post-election interest rate increases by the Federal Reserve.
In June, we noted Brexit and the U.S. presidential election as signs of a potential underlying political change, but that it was too early to know if they were points on a line. November’s election result confirms the points are linked and that the populist, anti-globalization message will continue to impact politics and policy in the U.S. and Europe in the near term. One of the immediate questions is whether President-elect Donald Trump’s stated plans for infrastructure spending will temper any Federal Reserve plans for increase rate increases.
Q3 saw overall technology M&A up 80% year-to-year, totaling $153B, as a result of blockbuster transactions with 33 M&A transactions valued at $1B or more announced. These $1B+ transactions accounted for $133B of the $153B spent on technology M&A for Q3. The number of transactions announced declined 22% year-to-year, at 910.
Private equity firms continued to boost overall technology M&A, accounting for 21% of overall technology M&A spend. PE firms closed 82 technology deals in Q3 with the total value of those deals reaching $31B, which is more than what PE firms spent in the first two quarters of 2016 combined. Moreover, cash-rich PE firms continue to target large take-privates, including Rackspace and Polycom.
The overall IPO markets were slightly down 3% year-to-year in proceeds raised for Q3, with 33 IPOs (tech and non-tech) completed in the U.S. Q3 saw the floodgates open for the technology IPO market as ten technology companies went public. Technology IPOs were up with $1.9B raised in Q3, a 1,800% year-to-year increase. The accelerated activity in the technology IPO market coupled with strong performances of recent technology IPOs portend the start of a good run for the overall technology IPO market. However, the private financing markets were down as US venture capital investments in Q3 declined to $15.0B, down 29% year-to-year, as the industry undergoes a regression to the mean. The number of deals also dropped 29% year-to-year to 1,810 deals.