Top trends in technology M&A

The technology M&A market is in constant flux, with global economic conditions, liquidity levels and specific demands impacting trends in the sector. Business transfer agents see trends come and go firsthand, especially in vibrant hubs of M&A such as the London corporate finance scene. Here are some of the top trends occurring in the M&A marketplace today.

Volume and valuation

Investors appear to be rewarding high-growth technology IPOs and industry growth leaders with premium valuations. Slowing growth and higher cash reserves for large technology companies also may drive higher valuations and prompt increased M&A activity.

Growth

Enabled by a highly liquid capital market, the strongest equity market in a decade and low interest rates for well-capitalized buyers, M&A is becoming a preferred strategy to accelerate growth. Moreover, aggressive revenue targets may lead to deal-making focused on convergence and software-defined innovation to achieve growth.

Technology, media and telecommunications (TMT) convergence

Convergence, disruptive technologies and the increasing influence of digital channels are expected to continue to drive M&A activity in the technology sector. New business models that combine multiple technologies and sectors are rapidly emerging, as companies in many industries, such as medical devices and automotive manufacturing, incorporate sophisticated software into their products.

Monetizing big data

Large industry incumbents investing heavily in the cloud appear to be shopping for small-to-medium-sized companies. Software-defined businesses looking to disrupt data networking and other traditionally hardware-based solutions could be dealmakers or targets. M&A targets could arise in the visual discovery, predictive analytics, and text and rich media analytics areas.²

Cross-border M&A

Faster technology adoption and greater innovation in emerging markets are leading to more cross-border M&A deals as geographic boundaries disappear amid the pursuit of market and revenue growth. An uptick in inbound M&A, with Chinese, Brazilian and, potentially, Japanese firms, buying U.S.-based companies, is also driving activity. The growing trend of “acqui-hires,” especially for smaller acquisitions, could drive more cross-border acquisitions.

Business transformation

The pace of technology change and the constant convergence of different business models across TMT appears to be prompting a buy-instead-of-build mentality. Sought-after assets may include hardware, software and the employees who develop them. Acquirers may need to scale-up their M&A capabilities as they transact larger, transformational deals, while also making smaller acquisitions that address talent and IP goals.

Divestitures

Maturation of certain technology sectors has some companies streamlining their product and services portfolios to focus on redefined “core” offerings and selling those that have become tangential. An increase in divestitures of underperforming or non-core assets seems likely, along with more rigorous preparation on the part of sellers as a way of defending value and maximizing proceeds.

Talent management

As tech companies turn to M&A to bolster their talent base, retaining, managing and developing the talent that comes with an acquisition is creating new challenges. Workforce engagement is becoming increasingly important during an integration or divestiture, particularly if a company’s core competencies reside in virtual employees.

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