News and Research

The Coming Tech M&A Boom

Quick Answer

Solganick & Co. predicted a significant boom in tech mergers and acquisitions for 2018, following a less active 2017. This optimistic outlook was driven by high confidence among tech executives, with 80% reporting faith in the global economy and over half planning acquisitions in the coming year. The market also saw increased activity from new players, including private equity firms that had tripled their technology investments over the past seven years, alongside strategic buyers seeking talent and new technologies like AI and blockchain.

What Factors Are Driving the Tech M&A Boom?

The tech M&A boom is driven by several key factors, including strong tech executive confidence in the global economy, earnings optimism, tax reform, and readily available credit. In 2018, over half of surveyed tech executives planned to pursue acquisitions, making it a seller's market where buyers must be agile and well-prepared. These conditions, following a subdued 2017 for tech M&A, indicate an inevitable surge in deal-making.

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.

Who Are the New Players in Tech M&A?

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.

How Can Tech Companies Beat M&A Competition and Ensure 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.

How Do Policy and Market Shifts Impact Tech M&A?

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]

Frequently Asked Questions

1 What is the outlook for tech M&A in 2018?

The page indicates that 2018 is expected to be a boom year for tech M&A, following a slower 2017. This outlook is supported by 80% of tech executives expressing confidence in the global economy, along with earnings optimism, tax reform, and the availability of credit.

2 Who are the key players driving tech M&A activity in 2018?

Competition in the 2018 tech M&A market is coming from new players, including nontraditional acquirers, private equity firms, and sovereign wealth funds. Tech incumbents are also actively seeking opportunities to acquire companies with new technologies like blockchain, artificial intelligence, and augmented reality.

3 What should companies consider to be competitive in the 2018 tech M&A market?

In this seller's market, buyers must be agile and well-prepared. Companies should explore synergy opportunities, build compelling deal narratives, and leverage advanced analytics. A rigorous evaluation process, including predictive analytics, is crucial for those seeking acquisitions.

4 Are there specific tech sectors seeing increased M&A interest or consolidation?

Yes, the page highlights that growing vulnerabilities are leading to potential consolidation within the security sector. Additionally, tech incumbents are showing strong interest in acquiring companies focused on emerging technologies such as blockchain, artificial intelligence, and augmented reality to enhance existing product lines.