Tech M&A will hit new highs by 2022, Gartner claims

Technology providers are becoming increasingly attractive prospects to private equity players

Global M&A activity involving technology providers will exceed previous highs recorded in 2018 by next year, analyst firm Gartner has said.

The market watcher claims acquisitions of tech providers were briefly impacted in 2020 by the Covid-19 pandemic, but M&A activity quickly rebounded into 2021 as the economy began to recover.

It added that deals were more negatively impacted during the second quarter of 2020, but activity in Q4 was higher than in the last two years.

Acquisitions of communications providers led the rebound in the second half of 2020, followed by acquisitions of services and software companies.

"Market conditions for deal making will continue to improve as volatility stemming from Covid-19 subsides," said Gartner senior research director, Max Azaham.

"Tech CEOs pursuing acquisitions should anticipate increased competition for targets and take steps to gain advantages over other acquirers to earn seller acceptance."

Private equity to lead the way

Gartner said financial services companies, predominantly private equity firms, are having an "increasing interest" in snapping up technology providers.

The analyst firm said financial acquisitions of software providers represented more than half of all tech deals in 2020.

The largest gains in the second half of 2020, according to Gartner, involved the buys of communications providers, which were up 93 per cent.

Transactions around services providers also rose 30 per cent in Q4 2020, compared to the prior two years' average.

Increased consolidation set to shake up market

Consolidation of providers with high degrees of overlap increased by 65 per cent and 40 per cent in services and software markets, respectively, in the second half or 2020, compared to the average number of M&A transactions in 2018 and 2019 (transactions of over $1bn in value were excluded).

Gartner said these consolidation trends suggest tech CEOs must be prepared for competitive landscapes where key competitors merge, especially among service providers.

"Instead of making acquisitions or being acquired, tech CEOs will start to consider partnerships and ecosystems to level the playing field against larger companies resulting from consolidation in their markets," added Azaham.