Increase in Technology M&A

The technology industry has been undergoing significant consolidation in recent months and it is expected that this trend will continue. According to Mergermarket’s third quarter (Q3) 2014 Global M&A roundup report for the Technology, Media and Telecom (TMT) sector, global TMT M&A transaction value during the three first quarters of 2014 reached $494.8 billion, a 20.4% increase compared to the same period last year, and the highest TMT value on Mergermarket record (since 2001) for the first three quarters of the year. While media and telecom M&A have provided some of the year-to-date’s megadeals (such as the $68.5 billion acquisition of Time Warner by Comcast and the $65.5 billion purchase of DIRECTV by AT&T), domestic purchases of US-based technology companies have reached a post-financial crisis high with $98.1 billion-worth of deals announced to date in 2014, exceeding every annual total since 2006.

Increased Influence of Activist Investors

The TMT space also has proven to be a frequent and fertile arena for shareholder activists. Shareholder activists have, since the start of 2014, launched a number of campaigns against high-profile technology companies including:  

  • Elliott Management, controlled by Paul Singer, using its stake of more than $1 billion in EMC Corp. to agitate for a spin-off of the computer storage company's VMware software business.
  • Third Point Management, run by Daniel Loeb, acquiring 6.5% of Sony Corp. and seeking a breakup, contending that splitting the Japanese electronics and entertainment conglomerate into pieces could raise its stock price as much as 60%.
  • Starboard Value, an investor at Yahoo!, pushing a dissident slate for the board and urging Yahoo! to merge with AOL. Also, on September 30, 2014, Bloomberg reported that another shareholder, Alternative Investment Management & Research SA, sent a letter to Marissa Mayer, CEO of Yahoo!, and Masayoshi Son, Chairman of Japanese telecommunications company SoftBank, proposing a merger between the two companies. The letter also suggested that Yahoo! would be better off under the leadership of Masayoshi Son, instead of Yahoo!'s current management.
  • Juniper Networks, after having faced an activist campaign from Elliott Management, settled with them in February 2014. This led to the introduction of two new independent directors at Juniper and Juniper announcing a plan to return $3 billion to shareholders over the next three years, including $2 billion in share repurchases through Q1 2015 and initiation of a $0.10/share quarterly dividend in Q3 2014

Some technology companies – most notably, Google and Facebook – have taken proactive steps with their capital structure in light of activist activity. Each company issued separate classes of shares, with majority voting rights going to company insiders. These dual-class share structures frequently reduce the leverage of the activists by putting more control of the company in friendly hands.

In response to the cries of activist investors, many companies have subsequently engaged in significant corporate M&A transactions.