Three-quarters of top dealmakers who took part in the survey anticipate tech M&A deal volumes will increase through mid-2022; drivers for the M&A pipeline include scaling up by tech companies to increase competitiveness, adapting to technological advances, and meeting lasting pandemic-induced preferences for convenience and safety.

Morrison & Foerster, a leading global law firm, today announced the results of its annual Tech M&A Market Survey, which show that dealmakers foresee 2022 sustaining a high level of M&A deal volume on top of record-setting activity in 2021. The second quarter of 2021 was especially active, with $511 billion in aggregate deal value, far outstripping pre-pandemic highs. The new Morrison & Foerster survey report, Fast Forward: How Technology M&A Is Reshaping Industry, in conjunction with Mergermarket, also shows that the top drivers for tech M&A deals over the next 12 months will be scaling up for industry competitiveness, keeping pace with technological advances, and realigning strategies to address the lasting impact of the COVID-19 pandemic.

“This year’s appetite for transactions, higher tech valuations, and increasing acceptance of additional M&A financing structures translate into dealmaker optimism for tech M&A next year,” said Brandon Parris, Morrison & Foerster’s global M&A co-chair. “Companies continue to invest in their operations in order to compete in a constantly changing marketplace. The drive to grow and scale through new technologies will continue to fuel the tech M&A pipeline well into 2022, as companies seek market-leading positions in their industries.”

Survey Highlights

• 78% and 54% of respondents, respectively, expect aggregate tech M&A deal volumes and average values to increase through the first half of 2022.

• 42% of respondents abandoned or postponed a tech M&A deal between May 2020 and May 2021 due to the COVID-19 pandemic.

• The key driver of respondents’ tech M&A strategy through May 2022 will be scaling up to increase competitiveness, with 22% of survey respondents identifying this as the most important factor for their organization.

• Cloud technology is cited as the best near-term sector for dealmaking opportunities, as identified by a wide margin of respondents (19%).

• 25% of respondents believe the greatest challenge facing tech M&A through the first half of 2022 will be a stricter regulatory and foreign direct investment (FDI) environment.

The survey also shows that tech M&A values are expected to continue to rise over the next 12 months as a result of record investments made by venture capital, private equity, and other investors in 2021. Nearly three-quarters of North American respondents (73%), for example, predict average tech deal values will increase, including nearly half (47%) who expect a significant upsurge. Respondents in Asia and Europe also predominantly anticipate increased valuations, at 63% and 57% respectively. Latin America dealmakers were more cautious, with only half of respondents based in the region reporting that average deal values are expected to increase.

Private Equity Tech Investments Loom Large

Over the last 12 months, private equity (PE)’s growing investment in tech has contributed to an increase in private company valuations. The survey also shows continued enthusiasm for the technology sector by PE respondents. While 45% of corporates are anticipating doing two or three deals and 9% expect to complete at least four tech M&A deals, PE respondents are more bullish on future tech investments, with nearly half (49%) expecting to do two or three tech deals and almost a third (30%) seeking to do four or more in the next year.

High-Growth Private Companies in Demand

Across all respondents, high-growth tech companies operating for two to five years were the top M&A target. Nearly two-thirds of respondents (60%) say they most frequently look to acquire tech companies with this profile, while 26% preferred mature companies over five years old. Companies at this funding stage are looking to scale and grow, and the operational expertise of a venture capital (VC) or PE firm is especially beneficial at this juncture.

The market for high-growth tech companies is competitive as it is the preferred target for PE firms entering the traditional VC market. Nearly three-quarters (74%) of PE respondents preferred high-growth companies compared to 46% of corporate respondents. PE firms and corporates with shorter investment time horizons and more conservative risk-return strategies prefer tech companies with more road-tested business models, while VC firms have more experience and risk tolerance for startup investments.

Respondents Eye B2B Tech for M&A Targets

When asked about the types of technology that offer the best opportunities for dealmaking over the next 12 months, respondents selected B2B technologies that supported new pandemic-driven preferences for convenience and safety. As a foundational technology that underpins the internet infrastructure and new lifestyles based on remote work, e-commerce, and at-home entertainment, cloud technology received the most responses, from 19% of dealmakers; this illustrates the clear impact of the pandemic on dealmaking. The next two leading subsectors, customer relationship management (16%) and business intelligence and data analytics (14%), underscore how firms are prioritizing large datasets to drive future tech M&A valuations.

SPACs, JVs, Club Deals Encourage M&A Dealflow

Tech M&A deal volume reached record highs through the first half of 2021, assisted by a myriad of M&A deal structures from special purpose acquisition companies (SPACs) to joint ventures (JVs), to private investments in public equity (PIPEs), to club deals. Just under half (49%) of all respondents are considering a SPAC for a tech M&A deal over the next 12 months, but private equity firms are enthusiastic adopters, with 57% of PE respondents looking to close a SPAC transaction. The deal structures most likely to be utilized for upcoming tech M&A deals include JVs (25%), club deals (21%), and PIPEs (16%).

Methodology

In Q2 2021, Mergermarket surveyed 300 dealmakers from around the world to gain insights into the future of technology-related M&A. Respondents were equally distributed among corporates with a minimum of $250 million in annual revenue and PE firms with a minimum of $500 million in assets under management. In respect of geography, 30% of respondents were based in North America, 30% in Europe, 30% in Asia-Pacific, and 10% in Latin America. All survey responses are anonymous, and results are presented in aggregate.