01 Sep Tech M&A is Taking Off, In Spite of the Pandemic
Tech is so hot this year that even a pandemic that has sent the economy to a screeching halt can’t slow it. Tech stocks have already rebounded from the coronavirus better than other market sectors. Now it looks like we’ll see more deals and IPOs than ever before. In some cases, the pandemic may even be driving the tech boom, as companies seek technological solutions to the challenges COVID presents.
Amazon and Uber both secured billion dollar deals this year, though the coming wave of deals might make those deals look small. Goldman Sachs is reported to be advising Softbank on a possible deal for Arm Holdings, for $32 billion. Dell announced its willingness to consider selling off its 81 percent state in VMWare.
So what do we anticipate as more M&A happens in each sector? Look for companies considering mergers to slow hiring leading up to deals. The regulatory environment remains friendly to deals, and the tech sector remains highly resilient, falling by only 2 percent in the first quarter, compared to an average 39 percent in other industries.
What about the biggest deals? They haven’t happened yet, and there is no guarantee that either the Arm Holdings or VMWare transactions will go according to plan. But that’s just hardware M&A. There have been many consumer-focused deals propping up tech, too. Credit Karma sold for $7 billion to Intuit, shortly after significantly reducing job postings.
TechFin has seen a lot of deals, too, with Morgan Stanley spending $13 billion to add E*Trade, marking a major shift toward automation. This happened just weeks before the pandemic. Visa similarly spent $5 billion pre-COVID to purchase the portfolio of services offered by Plaid.
There’s also been an M&A bonanza in the food delivery space. We expect that trend to continue and expand. First, Uber sought to buy Grubhub, which eventually found a better buyer for a larger bid. Uber then went after Postmates in a deal with a value in excess of $2.6 billion. So along with all of the brewing deals, there remains a significant likelihood that fintech M&A and other consumer-driven services will grow, particularly if the lockdown continues.
The pandemic has disrupted much of what we take for granted. It also presents some potent opportunities for growth in tech businesses that are willing to offer consumers greater convenience and safety.