01 Sep Some Trends Driving Tech M&A in 2022
2021 was a year of transformational tech M&A, and 2022 shows no signs of that trend slowing. This year, deal makers continue to seek growth opportunities, including add-on products and services that boost profitability. A number of new factors are figuring prominently in the tech M&A space. Thoughtful parties to mergers must be mindful of these trends. A proactive approach is key here. Merely reacting to trends is not the best tech investment banking strategy. But when a trend is directly relevant to your company, or presents a new opportunity, it’s important to be ready to take advantage.
The convergence of augmented reality and virtual reality in the metaverse is getting increased attention, especially as Facebook has rebranded as Meta. Technology is innovating quickly, and gaming companies increasingly see roles for their products in the new meta-centric world. Consumers, too, are investing in metaverse technologies, and companies that capitalize on this trend may see big gains.
We don’t know how the new metaverse trend will unfold over time. But the lesson from history is clear on one thing: companies that do not adapt to emerging technological trends decline. We expect many more metaverse announcements in the coming year or two. In the early days of this technology, it will be difficult to sort out the winners and losers, and even harder to assess which technology offers the most promise.
Special purpose acquisition companies came into their own in 2020 and 2021, offering opportunities for businesses to go public while foregoing the traditional initial public offering (IPO) process. Increased attention from regulatory agencies means that SPAC listings are now on the decline, in spite of raising over $160 billion. Many of these SPAC businesses remain obligated to complete deals in the next 12 to 18 months, or return money to shareholders. Some have already announced plans, and others will do so soon. So these SPAC companies may continue to influence the sector. But overall, we’re seeing a trend away from SPAC companies.
Skilled and specialized labor is increasingly available across borders, including in companies that offer historically low labor prices. In light of a tightening labor market and serious labor shortages, cross-border talent may continue to drive deals, access to capital, and corporate fortunes. Dealmakers can save money and thrive in a tight labor market by moving some operations to Mexico or other countries.
The Future of M&A
The COVID pandemic put on full display the importance of flexibility. Tech companies must be prepared to rapidly pivot, and to adjust to changing economic and dealmaking norms. Those who successfully do so make a strong case for their long-term profitability and viability, and can win big even with a recession looming. For most tech companies, the lowest risk time for a deal is now, given the threat of a recession, rising inflation, and rising interest rates that mean the value of a deal may plummet in time. Partnering with the right tech M&A firm is critical as you make these decisions.