THE mergers and acquisitions (M&A) landscape is exploding in Asia - especially where technology businesses are involved.
In the first three months of the year, M&A activity was worth US$102 billion (S$127 billion), up a sizzling 36 per cent from the same period last year, according to the MergeMarket Trend Report on the first quarter of this year.
Mr Jacob Mullins, chief executive of ExitRound, said large global corporations coming out of the recession of 2008-2009 want new products and services.
But the challenge is that many have trimmed their research and development budgets.
"Acquisition is the only way for them to introduce new things," he said.
Non-tech corporations have identified software-based pro-ducts as the new areas of growth.
"These reasons, plus the ease of starting a software business and easy availability of funding globally, create a good pipeline of tech start-ups that are ready for M&A," said Mr Mullins, who was speaking at the start-up conference Echelon 2014 yesterday.
Echelon is a two-day event at the Singapore Expo where entrepreneurs, venture capitalists and policymakers discuss the state of the start-up landscape in Singapore and globally.
Describing the start-up M&A scene as experiencing "stratospheric" growth, Mr Mullins said the MergeMarket report also showed that companies had spent US$599 billion acquiring start-ups last year. This was 33 per cent higher than in 2012.
"The telecoms and infocomm technology saw the highest M&A activity since 2006," he added.
The M&A explosion will continue this year with some of the largest acquisitions in tech history already done. Facebook, for example, paid US$19 billion to buy text messaging firm WhatsApp.
Mega deals such as this, he stressed, are rare - less than 1 per cent of all M&A activity globally.
About 88 per cent of all deals are below US$100 million. However, this does not mean that the founders of these companies get lower returns, he said.
In fact, the best returns on capital are with companies that receive funding of between US$2 million and US$10 million.
The returns on consumer-centric start-ups are likely to average about nine times the investment, while returns for enterprise start-ups are higher at an average of 21 times the initial investment, he said.
Start-ups with disruptive technologies and a good customer base are likely to be acquisition targets, Mr Mullins said.
To prepare for M&A interest, he advised start-ups to start looking for an internal champion who can begin to collect information such as intellectual property filings and financial reports.
"It doesn't matter if your start-up is interested in an acquisition. Just prepare for it, like getting your financials, so that when the right acquirer comes along at any time, you're already prepared," he said.
Echelon this year attracted 1,700 people, up by more than 30 per cent from 1,200 last year. The number of start-ups showcasing their products and services rose to 120 from 90.