Despite the continuing uncertainty during the pandemic, the tech sector has witnessed soaring dealmaking activity over the past year, rocketing in the second half of 2020 onwards, with the last quarter of 2020 providing a record quarter for M&A activity, and continuing its momentum into 2021.
Dealmaking in tech sector soars in past year
And the latest figures bear this out with the number of technology M&A deals totalling US$208.44bn globally in Q1 2021, according to GlobalData, with the US holding top spot both in the volume of deals (1034) and total value (US$140.61bn) and Europe following with 649 deals (US$44.49bn) and the UK continuing its reign as Europe’s biggest M&A market with 204 deals, second only to the US.
In particular, megadeals, those valued at US$5bn or more, soared in 2020 compared to 2019, with megadeals in 2020 representing 59% of all global technology sector deal value in 2020, up from 47% in 2019, according to the latest edition of the EY Technology Global Capital Confidence Barometer.
This trend towards megadeals in the tech sector is backed up by EY’s CCB data, which reports that 16% of tech sector respondents planning to pursue transformative deals valued at US$5bn or more in the near-term.
While technology deal activity “all but stopped at the beginning of 2020 after fluctuating between historic highs and lows”, explains Barak Ravid, EY Global TMT Leader for Strategy and Transactions, “companies pivoted quickly and tech M&A exploded in the second half of the year”.
M&A activity level for tech sector growth
And when it comes to the future, technology executives are optimistic, with nearly half (47%) expecting profitability to fully rebound this year, according to CCB data, compared to 23% across all sectors, and with more than half (51%) planning to pursue M&A in the next year in order to sustain growth.
According to Ravid, M&A activity is increasingly becoming a key lever for growth as businesses look to recover.
“To position themselves for future revenue growth, tech companies are now adjusting their M&A strategy to focus more on a target’s business resilience, digital technology alignment and to gain market share through consolidation,” adds Ravid.
However, with an increasingly competitive deal market and ongoing geopolitical tensions, the majority of tech execs expect to see more competition in the bidding process for assets over the next year, primarily from private capital.
