2023 Tech M&A Outlook

2023 Tech M&A Outlook

A recession on the horizon. Soaring interest rates. Unprecedented tech growth. A constantly evolving market that no one seems able to fully predict. These are just some of the factors influencing the technology and cybersecurity M&A outlook for 2023. Over the past year, most forecasts have looked backward to 2021, which saw unprecedented deal volume. 2023 will likely see significant M&A activity, but an uncertain market will continue to slow things, and the valuations of 2021 are likely to remain firmly in the past. This doesn’t mean tech M&A players should ignore the opportunities before them. For well-run, well-prepared companies, 2023 could be the best year yet. Here are our predictions for 2023’s tech mergers and acquisitions market.

Normalcy With Spikes

No one expects 2021 levels of deal activity. That bonanza was fueled by hope about an end to COVID, tech successes during the pandemic, and other unique market factors. But it is likely that the recession won’t cause a huge drop in M&A. So expect deal volume as normal, unless you’re in one of a few select industries.

Private tech firms may increase consolidation in the coming year, producing more M&A and an increase in IPOs. Similarly, fintech could see a boom in large transactions. We also expect that new and innovative technologies, as well as trends such as metaverse properties, may see growth. Several forecasters are predicting growth for health services deals, as this subsector has significant cash available.

The Challenges of Interest Rates and Cash Availability

A major factor feeding the bonanza of a few years ago was historically low interest rates. This made cash more available. Those days are a thing of the past. Borrowing money is more expensive. This narrows the pool of buyers, makes buyers more risk-averse, and means that businesses just aren’t getting the high valuations they once did. Through the first half of the year, we expect that borrowing money will continue to remain expensive. The trend should plateau toward the middle of the year and may improve toward the end of the year.

Private equity firms continue to have unprecedented quantities of money to invest (“dry powder”), which will continue to fuel acquisitions. As borrowing becomes less expensive toward the end of the year, we may begin to see a new surge in activity.

The Importance of Due Diligence

Buyers are inherently risk averse. No buyer wants to purchase a company without proven value, but that impulse is stronger now, in an uncertain economic climate. This means that due diligence continues to be a very high priority for buyers. It may take longer, and documentation requirements may become even more stringent. So tech firms contemplating M&A should not count on buyers to look the other direction if they cannot document their claims. Buyers are no longer dealing in hype alone. The time to get your books in order is now, even if you’re only beginning to contemplate M&A for the end of the year or looking ahead to 2024. A rapid due diligence process saves time, and potentially deals.