News and Research

The Coming Tech M&A Boom

What You Need to Know

2017 was a wash for tech M&A, but 2018 proves to serve up a boom. Eighty percent of tech execs report confidence in the global economy in 2018. Taken in conjunction with earnings optimism, tax reform, and confidence in the availability of credit, deal-making seems inevitable. More than half of surveyed tech execs say they will pursue acquisitions in the next year.

It’s a seller’s market, so buyers must be agile and well-prepared. Here are some of the factors affecting 2018’s tech M&A outlook.

New Players

Competition comes from increasing interested in nontraditional acquirers, as well as private equity and sovereign wealth funds descending upon the market. Private equity firms have showed a unique interest in tech assets, and have tripled technology investments over the last seven years.

While tech companies attract players seeking talent and tech upgrades, private equity firms tend to bid on companies that grow beyond hype into a steady pattern of growth. They seek stable management, and profitable businesses.

Tech incumbents also seek opportunities to buy into new technologies—blockchain, artificial intelligence, and augmented reality, for starters. These strategic investments help buyers improve existing product lines.

Vulnerabilities are growing, so tech companies seek solutions that foster reliability and trust. With more than 1,000 security vendors, many companies work with two to three vendors per security platform. We may see more consolidation in this sector of the market.

Beating Competition and Ensuring Fair Prices

Competition from PE and strategic buyers is spurring an increase in competitive and hostile bids. Tech companies should be prepared to compete by exploring synergy opportunities, building deal narratives, and leveraging advanced analytics.

Selling business segments, a process known as a carve-out, is also increasing in popularity. These attractive assets also bring some risk and uncertainty. Sellers may seek a speedy transaction, making buyers nervous. Companies seeking acquisitions should not shy from these opportunities. Instead, they should embark on a rigorous evaluation process that includes predictive analytics.

All this adds up to one simple fact: businesses hoping to acquire new assets need to be well prepared. They must know who else wants to buy those assets, and how those potential buyers value the assets. Most companies need support to do this—ideally from the right tech tools, and a trained buy-side advisor who understands the tech world. Businesses that fail to do appropriate due diligence may miss out on valuable acquisitions—or acquire companies that ultimately become a drain. A well-designed M&A playbook can prevent this.

Remaining on Top of Policy and Market Shifts

With the possible exception of geopolitical issues, little stands in the way to prevent M&A transactions in technology companies this year. Valuations may be inflated, but even if stock prices drop, M&A conditions remain ripe. In fact, lower valuations may spur further activity by offering competitive purchase prices.

The combination of potential tax changes currently under consideration probably won’t shift the M&A landscape. If tech giants repatriate foreign money, Trump’s tax plan may offer greater liquidity. However, it’s unclear if offshore cash will fuel share buybacks or support domestic M&A.

About Solganick & Co.

Solganick & Co. is an independent investment bank and mergers and acquisitions (M&A) advisory firm that provides specialized expertise in the Software, IT Services, Healthcare IT, and Digital Media sectors. Solganick & Co. offers strategic and financial advisory and relationships within the industry, a deep knowledge within these sectors, and a premium team of experienced investment banking professionals. Our team assists companies and owners in completing mergers, sales, divestitures, spin-offs and acquisitions that are strategically and/or financially beneficial to your firm’s business model and transaction goals.

For more information or to discuss an M&A transaction, please contact us at [email protected]