Tech M&A plunges in Q2 amid high valuations and trade war worries, PwC reports

Chip Somodevilla/Getty Images

• The total value of tech-sector mergers-and-acquisitions
  in the tech sector fell to its lowest level in five years in
  the second quarter, according to a forthcoming PwC
  report.
  
• The decline followed a record-breaking first
  quarter.
• The falloff was due to high valuations, but also to
  Trump administration trade policies, the report says.

In the tech industry, the merger-and-acquisition market seems to
have suddenly fallen off a cliff.

The total value of tech deals fell to its lowest level in five
years in the second quarter and the number of deals declined from
the first quarter, according to an upcoming report by accounting
and consulting firm PwC. It’s a stunning drop, not least because
it comes immediately after the first quarter’s record-breaking
dealmaking in terms of the total value of deals.

The results are some of the highlights from PwC’s report on
second-quarter M&A activity. The firm plans to release the
full report later this week, so we don’t have all the details
yet. 

But an email to the press promoting the report cited various
reasons for the sharp halt in tech deals. High valuations was
listed as the primary inhibiting factor for tech deals, but
regulatory uncertainties and the emerging trade war the US is
waging against China and other countries also appears to have
dampened the appetite for tech deals. Because those factors
persist the outlook for tech M&A activity for the rest of the
year is cloudy at best.

The freeze in tech M&A is sure to raise questions about how
isolated the situation is to the tech sector, where products that
have access to user data is especially sensitive, and whether it
could be a harbinger of a broader change in the business
climate. 

The booming economy and the new tax law, which allowed corporate
giants including Apple
and Google
to bring home their overseas cash at a much reduced tax rate,
were supposed to boost merger-and-acquisition activity, and they
seem to have done so earlier this year. But the Trump
administration, which pushed through the tax reduction, has
helped muddy the waters for M&A.

Earlier this year, the administration
blocked Broadcom’s proposed acquisition of Qualcomm on
national security grounds, leading to growing uncertainty about
what deals involving foreign companies might also be barred. The
administration’s implementation of
tariffs on a slew of goods has led to concerns that other
countries, particularly China, might block acquisitions of their
companies by US firms.

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