What is driving tech M&A at such high, sustained levels? As technology and non-technology companies alike are being disrupted by innovative digital technologies — as they face the same unforgiving economic and business environment — they are turning to M&A in search of solutions.
Technology executives see current M&A trends continuing
The vast majority of tech respondents to our survey (91%) surveyed in this 15th Capital Confidence Barometer see the technology M&A market remaining in record territory. That’s where EY’s Global technology M&A report again found it in 3Q16, when aggregate disclosed deal value for the quarter was US$155.5 billion – the third highest quarter on record – and the pace of deal volume was only 4% behind 2015’s post-dotcom record. Half of technology executives expect to actively pursue M&A in the next 12 months.
Survey reflects slow economy, slumping trade, political instability
Few technology executives (17%) see global economic improvement on the horizon, and their concerns are compounded by a slowdown in international trade flows due to economic nationalism and protectionism. Executives see significant political instability both at home (60%) and abroad (29%).
Access to credit becomes a concern
Credit and equity are both the subject of uncertainty. This Barometer has seen a steep drop in confidence regarding credit availability – of 41 points over the past year. Equity valuations are also seen as increasingly problematic.
Cross-cutting digital transformation at work
Digitization and cross-sector competition/convergence are cited by executives as most disruptive to their core business. The former is driving the latter in the technology sector – and across all industry sectors. Nearly half of technology executives (49%) cite digitization among their top two disruptors, as do 43% of executives from across all sectors. Nearly half of technology executives (48%) also cite the resulting industry blur among their top two disruptors, as do 46% of executives from across all sectors.
Confidence bounces back in corporate earnings
For all the challenges, confidence has rebounded in corporate earnings in the past six months, although still below year-ago levels. Sixty percent of technology executives describe themselves as confident.
Many take the inorganic route to growth
In today’s low-growth economy, some 41% of technology executives are looking beyond organic development to find growth in acquisitions, joint ventures and alliances such as “industrial mash-ups.” This new form of dynamic and increasingly automated partnering in the business-to-business (B2B) market delivers the potential for growth with greater agility and lower cost.
Driving deals: Search for growth, innovation – and the talent to deliver them
Technology companies are doing deals for different reasons inside and outside their own sector. Within the technology sector, deals aim primarily at growing market share (46%) and addressing customers’ changing digital behaviors (43%), executives say. They are making acquisitions in other sectors primarily to acquire talent (76%) and new product or service innovation (41%). In the hunt for talent, the competition can cut both ways – companies in all industries are doing deals to acquire talent outside their own sectors (52%).
EY Legal Services Contacts:
Richard Norbruis – Global Transaction Law Leader
Richard Goold – Global Technology Law Leader