Our 17th Technology Capital Confidence Barometer sets the stage for ongoing, diverse M&A across the tech sector. Multiple industry-defining dynamics are at work today, including the verticalization of software platforms, long-rumored consolidation in enterprise security and a flurry of buy- and sell-side activity by incumbent tech titans pursuing growth. The environment is seen as highly conducive to dealmaking on these and other rapidly shifting technology fronts.
In a single year, tech executives’ confidence in the global economy has soared from under 20% to more than 80%. Four-fifths also see their own sector improving today. Perhaps that’s not surprising given that the combined market capitalization of global technology firms is up 43% from this time a year ago.
Continuing the bullish theme, there is optimism about corporate earnings (as 71% see earnings improving in the tech sector) and about equity valuations (as 46% see the stock market outlook for the sector improving). These sentiments, alongside greater confidence about access to credit, are net positives for investing and dealmaking.
All of this helps explain why near-term dealmaking intentions have trended higher in 2017 (57%) than those in 2016 (40%–50%). Yet actual tech M&A has slowed in 2017, compared with blockbuster years in 2015 and 2016, with EY analysis projecting a year-over-year decrease of 9% in volume and 34% in value for full-year 2017.
Market share and innovation are driving tech M&A. Nearly half of executives surveyed are pursuing deals for growth and innovation, while 40% say the main driver is acquiring for tech or talent, demonstrating a continued interest in “acqui-hire” deals. Tech respondents also expecting increasing deal competition from private equity and corporates.
The question of how much of today’s tech sector optimism translates into tomorrow’s done deals will be answered in 2018. Tech companies can work to realize their dealmaking intentions by taking deliberate steps indicated in this report: re-evaluate their portfolio review process, take advantage of modern analytical tools, prepare for an increasingly competitive M&A market and pre-plan for integration.