High-Tech M&A Defies The Odds

08 December 2020

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Despite disruption and economic upheaval, the appetite for deals in the high-tech & software sector has not waned during the pandemic. Private equity and corporate buyers expect deal activity to remain strong: 70% said they plan to acquire as many as two software/high-tech companies over the next 24 months, and 27% intend to make three or four acquisitions. These are among the principal findings in this new report by West Monroe and Mergermarket.

The report explores the demand, strategy, diligence, and post-close process for buyers of high-tech & software companies. As a basis for the report, West Monroe and Mergermarket surveyed 100 private equity and corporate/strategic buyers during the third quarter of 2020.

Key findings of the study include:

  • Global deal value for the technology, media, and telecommunications (TMT) industry increased 21% through the third quarter of 2020, compared to the same period a year ago. Although 60% of survey respondents said they postponed or canceled plans to make a software or technology acquisition as a result of the COVID-19 pandemic, 55% said they expect their deal appetite to either increase or stay the same over the next 24 months.
  • Private equity investors in high-tech & software have primarily focused on consolidation or scaling up to increase competitiveness (74%) and transformation, for example through new intellectual property (66%). Corporate buyers are different: Their primary objectives for recent high-tech and software acquisitions were incorporating a specific functionality or intellectual property into an organization to enable product differentiation (72%) and acquiring a new customer base (64%).
  • Subscription revenue is a priority, particularly for private equity; 40% of private equity respondents said that 50% to 70% of their tech portfolio markets goods or services to customers on a subscription basis. By contrast, half of corporate buyers surveyed report that less than 50% of their revenue comes from subscriptions.