Q3 2016 Market Observations

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.