A newly released report from Mergermarket concerning M&A trends in the first half of 2019 has shown that M&A in the technology sector has reached new highs. So far, 1,307 deals have been recorded in the technology sector this year, equating to 15.9% of deal activity by volume in 1H 2019, its highest half-yearly share on Mergermarket record.
In fact, in recent years tech M&A has reached record levels but what are the reasons for the industry’s popularity?
Big Tech Companies Purchasing Innovative New Tech Businesses
As big tech companies are wealthy, they are using this wealth to buy new companies with innovative technologies, meaning the big tech company itself secures the new functionality or service – a much more efficient way for the big tech to obtain the functionality or service than having to create the innovation itself.
Traditional Companies Buying into the Tech Industry to Remain Relevant
As the world is becoming increasingly digitised, companies in traditional sectors are acquiring tech companies to remain relevant, digitise processes and drive efficiencies. For example, AI and machine learning is changing the way that companies market to their customers, e.g. mobile tech offers an effective channel for brands to convey messages, hence digital marketing companies acquiring in the tech industry. Another example is healthcare, as technology assists with diagnoses, and connected tech helps to monitor patients.
While the sector is popular with strategic buyers for the above reasons, it is private equity that is driving activity, accounting for 23.2% of all global buyouts so far this year, up from 12.8% in 2013 and, in Europe, the continued interest in innovative assets has meant foreign investment into tech reached 130 deals worth a combined USD 12.5bn, representing 25% total inbound deal count respectively.
This is no surprise, as the technology sector has a business model that suits private equity, such as the ability to generate recurring revenue, as discussed by Benchmark International in the article reasons why private equity firms are investing in SaaS companies.
Therefore, when it comes to the tech sector, private equity firms are acting more like strategic buyers, employing buy-and-build strategies, all enabled by the high levels of dry powder held by fund managers focused on tech.
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Benchmark International’s global offices provide business owners in the middle market and lower middle market with creative, value-maximising solutions for growing and exiting their businesses. To date, Benchmark International has handled engagements in excess of $5B across 30 industries worldwide. With decades of global M&A experience, Benchmark International’s deal teams, working from 13 offices across the world, have assisted hundreds of owners with achieving their personal objectives and ensuring the continued growth of their businesses.