By 2022, the level of global mergers and acquisitions (M&A) activity involving technology providers will surpass previous highs recorded in 2018, according to Gartner.
Acquisitions of tech providers were briefly impacted in 2020 by the onset of the pandemic, but M&A activity quickly rebounded into 2021 as the economy began to recover.
“Market conditions for deal making will continue to improve as volatility stemming from COVID-19 subsides,” said Max Azaham, senior research director at Gartner. “Tech CEOs pursuing acquisitions should anticipate increased competition for targets and take steps to gain advantages over other acquirers to earn seller acceptance.” added Azaham.
Acquisition activity was most adversely impacted during the second quarter of 2020, but activity in the fourth quarter 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.
The largest M&A activity gains in the second half of 2020 involved financial acquisition of communications providers and acquisitions of services providers by financial acquirers were 30 per cent higher in the fourth quarter of 2020, compared to the prior two years’ average.
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.
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,” said Azaham.