While Mergers and Acquisitions activity faces many challenges stemming from the COIVD-19 pandemic, M&A activity in the tech sector is among the outliers that is still seeing relatively healthy activity.
While 2020’s aggregate volume and value of deals overall have seen record lows in the middle and lower markets, some industries and deal types have been hit harder while others have stayed steady. For example, deal value in the technology sector reached $14.9B in Q2, nearly identical to the prior two quarters, according to a blog article by consulting firm, Axial.
“What the headlines won’t tell you is that when you zoom out of the aggregate analysis and zoom in on specific sectors, geographies, and deal types, outliers begin to emerge,” said the Axial post.
Here are some takeaways from the post:
- The number of private equity deals in the second quarter of 2020 reached 62% of total deals, a 12% increase compared to the previous five years. A sharp decline in corporate backed acquisitions and the agility of private equity during the crisis account for such a steep increase.
- Tech industry sectors that have proven to be pandemic proof thus far include: contactless purchasing, workforce management solutions, digital transformation, cybersecurity, and data analytics.
- Private equity firms began to deploy capital by deal-type during the crisis, focusing on immediate-term investing and rescue financing.
- Joint ventures, PIPES, and distressed debt became more popular strategies while buyouts were less popular considering credit tightening and soaring valuations.
Conclusion
With record lows in deal volume, there are record amounts of unused capital for the year, and it’s safe to expect a sharp rise in overall M&A activity as the economy stabilizes and credit availability increases.
If you were thinking about selling your tech business before the pandemic, but decided to put things on hold and wait to see what happens with the economy, now is the time to get started again. As we enter the back half of 2020, the outlook is much stronger than a few months ago. M&A activity in the tech industry has remained steadier than others and will remain strong as the market stabilizes.
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