06 Oct A Bullish Outlook for Tech M&A
The law firm Morrison and Foerster recently released its annual Tech M&A Market Survey. It shows a bullish outlook for 2022, with activity slated to grow even beyond the record-setting M&A bonanza of 2021. The report draws on survey data from market participants, and helps clarify some strategies deal-makers might use to get in on the tech M&A bonanza. Some highlights of the report include:
- Q2 was unusually active, with $511 billion in aggregated deal value, for exceeding pre-pandemic levels.
- Key drivers of M&A deals in 2022 will include keeping on top of tech advances, realigning strategy to address the effects of COVID-19, and scaling to become more competitive.
- Dealmakers are optimistic for 2022, thanks to higher valuations, increased acceptance of novel financing structures, and a strong appetite for growth. Seventy-eight percent of respondents expect aggregate deal volume to increase, with 54% anticipating an increase in average deal values through 2022.
- Forty-two percent of postponed or canceled a deal in 2020 or 2021 thanks to the pandemic. Now those companies are eager to reignite their M&A strategy.
- Respondents say their key driver of M&A will be scaling up, with 22% of participants citing this as their most important organizational goal.
- Cloud technology will figure prominently in deals, with 19% of respondents saying it is the best avenue for deal-making. B2B technologies that support pandemic-driven shifts were another popular response. Customer relationship management and business intelligence and data analytics also stand to figure prominently in deals.
- American respondents are especially optimistic about M&A, with 73% expecting average deal values to increase, and 47% anticipating a significant increase,
- A quarter of respondents report that the biggest M&A challenge in the tech sector will be a tightening regulatory environment.
- High-growth tech companies open for 2 to 5 years remain the primary acquisition target, with 60% of respondents seeking companies that match this description. Twenty-six percent said they prefer companies over 5 years old.
- Seventy-four percent of PE respondents say they seek out high growth companies, compared to just 46% of corporations.
- About half of respondents are considering a SPAC for at least one deal in the next year, though private equity firms are even more enthusiastic. Fifty-seven percent say they hope to close a SPAC transaction. JVs (25%), PIPES (16%), and club deals (21%) also ranked among the most popular deal structures.