In a West Monroe survey of 50 private equity firms and 50 corporate/strategic buyers in the third quarter of 2020, 70% of respondents report plans to acquire up to two tech or software companies in the next 24 months.
Six in every 10 respondents say they postponed or cancelled plans to make a technology acquisition due to the COVID-19 pandemic. Among tech sub-sectors, cloud application and infrastructure software are the most popular targets for acquisition in coming months.
- On the heels of major M&A developments, such as the Slack-Salesforce deal, analysts largely expect the technology industry to swing back strong from troubles throughout 2020.
Compared to other industries, the tech sector fared relatively well this year, shielded by some of the biggest pandemic impacts due to increased reliance on the digital space.
Software and tech giants leaned in to the shift with communication and collaboration acquisitions to build out business. Over $500 billion was spent globally on acquiring tech businesses thus far in 2020, Scott Denne, senior research analyst covering tech mergers and acquisitions for 451 Research, told CIO Dive earlier this month.
"These sorts of acquisitions are not new," Denne said. "The overall prices are certainly rising for them, that's more what's new."
As 2021 shapes up to be the year of recovery, tech acquisitions are set to push forward with cloud computing at the helm.
Next year, PwC predicts a "K-shaped recovery" for the software as a service market. The market will be divided into winners and losers, as larger vendors take the opportunity to keep growing through M&A.
"Many companies are shifting to remote work for the longer term and need to pivot to SaaS-based offerings," the PwC Technology Deals Insights: 2021 Outlook said. "That’s making tech companies attractive M&A targets to supplement companies’ existing capabilities."
The tech space previously centered around web and mobile, but once again, priorities change and acquisitions reflect the new landscape. Immersive and augmented reality, chatbots, smart devices, the internet of things, and other emerging technologies will also be a growing force in the market over the next several years.
While respondents to the West Monroe survey list the IoT and AI sub-sectors as lower acquisition targets, 4% and 8%, respectively, ranked them as top tier targets.
"In this decade, we're accumulating more and more digital touchpoints, digital channels," said Jason Wong, VP, analyst on the App Design and Development team at Gartner, to CIO Dive earlier this month.