Internet M&A Deals Down 55% Year-Over-Year, Thanks To Tech IPO Boom

Facebook’s eight year history is famously speckled with a number of buyout offers from the likes of Yahoo, Google, and Microsoft. But each time, founder Mark Zuckerberg opted to keep his company independent — against the advice of many. Now, with Facebook gearing up to hold an initial public offering that will value the company at some $100 billion, it’s pretty apparent that Zuckerberg was right all along.

And according to new data out of PricewaterhouseCoopers (PwC), others are opting to go the same route. Merger and acquisition (M&A) deals are taking a backseat at the moment, as more web companies are setting their sights on the possibility of an IPO.

Tech M&A Dips, Web M&A Dives

There were just nine M&A deals in the Internet sector during the first three months of 2012, compared to the 20 M&A deals that the sector saw during the first quarter of 2011, according to PwC’s latest U.S. technology M&A Insights report. Internet M&A deals also dipped on a sequential quarterly basis, as the sector saw 10 deals in the fourth quarter of 2011.

The larger technology sector overall, which in PwC’s report includes hardware, software, semiconductor, IT services and Internet companies, saw a dip in M&A deal volume as well. There were 64 tech M&A deals during Q1 2012, down ten percent from the 76 tech M&A deals that occurred in Q1 2011. On a quarter-over-quarter basis, deal volume declined by seven percent from the 69 deals that closed in Q4 2011.

Quantity Down, But Per-Deal Price Tags High

It’s also important to note that while the number of M&A deals is down, the cumulative transaction value is up — indicating that the companies who do opt for M&A transactions are seeing higher price tags. Cumulatively, Q1 2012’s tech M&A deals were worth $28.9 billion, an increase over Q1 2011 which saw $25.1 billion in deals.

Since deal volume was so low, the average deal value for Q1 2012 was $452 million, up significantly from Q1 2011 when average deal value was $330 million. There were nine billion dollar-plus tech M&A deals during Q1 2012, which PwC said represents the second highest volume of quarterly “mega deals” since 2008.

IPOs Up — Driving Valuations Up

Meanwhile, tech IPO activity is surging. There were 13 tech IPOs and 14 IPO registrations during the first quarter of 2012, continuing the trend from 2011 which saw 65 tech IPO listings overall, which itself was a 27 percent boost over 2010.

That public market frothiness is what’s mostly driving up M&A deal prices, PwC said in its report, which read in part: “Lofty IPO valuations have many companies pursuing a dual track to liquidity, preparing for both a sale and IPO, with attendant increases in valuation expectations.” With Facebook’s blockbuster IPO, which is widely expected to occur later this week, it looks like the current trends in tech M&A will only intensify — perhaps with Facebook itself emerging more as another low volume, big money acquirer.

Here are some key graphs from PwC’s latest tech M&A report (click on images to enlarge):