Tech M&A trends in times of COVID 19

COVID 19 will in the next month’s continue to influence the Tech M&A markets globally. Although the pandemic has hit most parts of the industry economically less hard than expected and has also created many winners, it has strongly accelerated already existing trends in Tech M&A: teleconferencing, e-commerce, streaming services, games, cryptocurrencies, telemedicine, med tech and online learning have become quickly part of our daily life’s and they will stay. All industries and services contributing to this change in our life styles – triggered or accelerated by COVID 19 – will benefit, will attract investors and secure deal flows in the tech sector. With the appearance of SPAC (special purpose acquisition companies), PE and SPAC are now competing for the best targets at increasing prices, whereas SPAC still stands for only a very small part of the market. SPAC will however become an additional divestiture channel for PE investments.

It will become more challenging to get a deal over the line and the risk of overpaying increases against the uncertainty of the post COVID 19 markets. Traditional industries are forced through the pandemic to substantially quicker implement their digital transformation strategies. Highly qualified labour in the tech industry is already a scare resource and we will see more acquihire deals, carve-outs and spin-offs as digital add-ons to manage the digital transformation of non tech corporations. Funds for the roll-out of 5G, towers and fibre optic cables in urban as well as in rural areas exist more than required but roll-out speed slows down due to limited qualified workforce and long application processes. Divestments of parts of the cable network to PE to generate fresh cash will be seen more frequently in the years ahead as well as some consolidations on the supplier/construction side of the cable network industry. The dramatic increase in cyber-attacks, the vulnerability of governments and corporates combined with large budgets in the industry will attract interest from PE and will create mostly tech related M&A activity. Disruptive business models in retail, electric cars, financial services and payments will be a challenge for traditional brands and they have to react with huge investments and acquisitions to defend their market shares.

On the contrary we see in many regions in the world a shift from globalization towards increased sovereignty, protectionism and regulation of the domestic markets. Stricter rules on privacy laws, the imposed restrictions against social media platform operators and a trend to a bipolar data fencing either in the US sphere or in the Chinese sphere will create challenges for cross border Tech M&A. ESG (Environmental Social Governance), sustainability and green finance have become in short time new hard factors in tech acquisition strategies of many buyers and have broaden the scope of due diligence processes. With continuing historically low interest rates, billions of dry powder in PE and a changing landscape of banks willing to accept IPR as collateral due to the increasing numbers of asset light transactions, the fuel for further tech transactions is there. The first half 2021 figures for Tech M&A are highly promising.