4 minute read 28 May 2019
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Technology companies increasing their M&A expectations

Technology dealmaking intentions remain strong; M&A continues to surface as the new growth engine for both developing and maturing companies.

The appetite for technology M&A in the latest EY Global Capital Confidence Barometer (CCB) showed a stark reversal from waning interest in our prior CCB in October 2018. Sixty-one percent of technology executives now expect to actively pursue M&A in the next 12 months — up from 40% in October 2018, and two points above the average for all sectors. We believe the renewed optimism for technology M&A is partly due to macroeconomic factors, including the Federal Reserve’s decision to not increase interest rates in 2019, coupled with the general perception that geopolitical tensions have eased from where they were at the end of 2018.

M&A intentions


of tech sector respondents intend to pursue acquisitions in the next 12 months.

An increased confidence in the global dealmaking environment is highlighted in the most recent CCB as over 80% of technology respondents said corporate earnings, short-term market stability and credit availability were all improving. Further, 65% of respondents say they intend to pursue cross-border technology acquisitions, up from 26% in our prior CCB in October 2018.

Further propelling M&A activity is the mounting investor pressure on maturing companies to combat slowing organic growth. We see most companies respond to growth concerns by looking internally at portfolio optimization and divestitures (see EY Technology Global Corporate Divestment Study) as well as externally in the market at M&A to unlock growth. As M&A becomes the new growth engine, more companies are buying assets to scale existing technology to not only survive in the market, but to win.

Megadeals on the rise

The first quarter of 2019 saw a 5% decrease in the number of announced technology deals, but a 4% increase in total deal value over the prior quarter. Looking back to the first quarter of 2018, deal volumes and values are up 2% and 39%, respectively, in the first quarter of 2019, further highlighting that larger technology deals are on the rise. Notably, there were 11 technology deals with a purchase price of US$3b or greater compared with 9 such deals in the fourth quarter of 2018. An active deal market not only signifies confidence in the global economy, but underscores the reality facing both growing and maturing companies of all sectors: transformational technology deals are needed to evolve their businesses to not only win in the market, but to survive.

Looking forward at the next 12 months, roughly two-thirds of executives expect deal pipelines to grow in the coming year, buoyed by growing confidence in the technology sector. Only 51% of respondents in our prior CCB believed the technology sector was improving from a holistic standpoint. Our latest poll shows supreme confidence in the sector, with 92% of respondents indicating the technology sector is moving in the right direction.

Sector confidence


of tech sector respondents believe the sector is moving in the right direction.

The strong dealmaking intentions cited in this latest CCB have naturally paved the way for deal competition. In line with our prior CCB, 86% of respondents expect more competition in the M&A market, primarily from private equity firms. The increasing competition for assets is resulting in rising technology deal multiples, which many believed had reached a zenith in late 2018. Of the 30 largest transactions in the first quarter of 2019, acquirers paid 6.7x trailing 12 months sales, up from the 5.1x multiple paid in the fourth quarter of 2018.

Competitive M&A market


of tech sector respondents expect more competition in the M&A market.

Maximizing value

The bidding war for technology assets has resulted in more pressure for buyers to integrate effectively to realize the buyer’s required return. Integration risk and the concern of overpaying for assets remains top of mind for technology acquirers, with almost a third of respondents citing integration as a top M&A challenge. Buyers hunting for transformational deals need to understand that short-term cost synergies may be more challenging to realize when compared with a consolidation play or tuck-in acquisition. Rather, transformational deals require more attention and focus on validating long-term top-line synergy estimates (e.g., cross-selling existing products, new customer relationships, new products).

It is vital for buyers to undergo detailed commercial diligence pre-sign to validate the market attractiveness, the buyer’s competitive positioning and key integration risks. It is also critically important for buyers to map synergy targets to specific integration actions during the initial diligence process and identify risk mitigation strategies early. Ultimately, achieving success for any type of acquisition requires a purposeful and outcome-oriented approach to integration, which is becoming increasingly important as buyer competition increases.

Show resources


The EY Global Capital Confidence Barometer (pdf) gauges corporate confidence in the economic outlook and identifies boardroom trends and practices in the way companies manage their Capital Agendas.