Semiconductor, Software Cross-Border M&A Heat Up, Communications Deals Cool, in First-Half 1996: KPMG

Business Wire, July 30, 1996

NEW YORK--(BUSINESS WIRE)--July 30, 1996--Lofty stock prices and increased global competition fueled a 92 percent jump in cross-border acquisitions, joint ventures and minority investments by semiconductor and software companies in the first half of 1996, according to KPMG Peat Marwick LLP. Nearly $3.1 billion in deals were announced in these technology sectors, compared with $1.6 billion for the same period last year. The number of announced transactions rose to 183 deals this year, compared with 174 in 1995.

"With a runup in equity values, many semiconductor and software firms were able to use their stock as currency to make purchases," said Bob Singleton, a KPMG Information, Communications and Entertainment practice partner. Additionally, increased competition and commoditization in certain sectors pushed many tech firms to seek lower production costs through foreign manufacturing. "This is especially true in semiconductors, where low costs can greatly improve margins," added Singleton.

At the same time, software companies experiencing growth pressure sought to satisfy demand through acquisition rather than internal expansion. "Many software firms just can't expand capacity fast enough. Faced with enormous demand, many have resorted to buying new capabilities rather than building themselves," added Steve Blum, a KPMG Corporate Finance partner.

Among the largest deals in the first half in these sectors were Japan-based Hitachi's $218 million purchase of Malaysia's LG Semicon and Canadian-based Corel's $185 million buyout of U.S.-based Novell's Business Applications Division.

Separately, spending on semiconductor targets showed a 138 percent upturn, with $2.0 billion worth of cross-border deals. Software recorded a 39 percent increase, to $1.0 billion.

Communications Deal Flow Slows

In contrast to semiconductors and software, the communications sector experienced a sharp 60 percent decline in cross-border deal spending to $3.9 billion in first-half 1996, compared with $9.8 billion in the same period last year. The number of deals also declined, to 119 transactions from 141.

Much of the decline in cross-border communications transactions stems from U.S. telecommunications deregulation. "Before reform, companies seeking to expand their market had to look overseas. Now, a whole new frontier has opened up in their backyards," said Blum. "With U.S. megadeals, those valued at more than $1 billion, such as Bell Atlantic-Nynex and PacTel-SBC, much of the U.S. industry's attention, energy and capital is focused inward, at home."

KPMG's quarterly study of cross-border deals is based on announced transactions. Figures for 1995 have been adjusted for pricing changes, deals that were not completed, and other factors.

KPMG Peat Marwick LLP is the U.S. member firm of KPMG International, The Global Leader among professional services firms. Worldwide, KPMG International has more than 6,000 partners and 76,000 professionals serving clients through 1,100 offices in 837 cities in 134 countries. In the U.S., KPMG partners and professionals deliver a wide range of value-added consulting, assurance, tax, and process management services in five markets: financial services; manufacturing, retailing and distribution; health care and life sciences; information, communications and entertainment; and public services. Additional information about the firm is available on KPMG's World Wide Web site (http://www.kpmg.com).

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