Press release

12 May 2021 London, GB

Tech megadeal market thrives despite unparalleled upheaval

LONDON, 12 MAY 2021. Despite continuing uncertainty amid the COVID-19 pandemic, the technology sector saw transformative deal activity soar over the past year, with mergers and acquisitions (M&A) increasingly becoming a key lever for growth as businesses look to recovery.

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  • 47% of technology executives expect profitability to fully rebound in 2021
  • Megadeals represented 59% of global technology sector deal value in 2020
  • 77% look to articulate a broader narrative around long-term value creation

Despite continuing uncertainty amid the COVID-19 pandemic, the technology sector saw transformative deal activity soar over the past year, with mergers and acquisitions (M&A) increasingly becoming a key lever for growth as businesses look to recovery. This is according to the 23rd edition of the EY Technology Global Capital Confidence Barometer (CCB), which gauges corporate confidence in the economic outlook among technology executives.

Megadeals that were US$5b and above represented 59% of all global technology sector deal value in 2020, up from 47% in 2019. This is consistent with the CCB findings, with 16% of sector respondents planning to pursue transformative deals valued at US$5b or more in the near-term. Technology companies further outpaced the market in relation to total shareholder returns according to the report, enabling many businesses to generate substantial returns despite only modest growth in revenue and profitability.

Barak Ravid, EY Global TMT Leader for Strategy and Transactions, says:

“Technology deal activity all but stopped at the beginning of 2020 after fluctuating between historic highs and lows. But companies pivoted quickly, and tech M&A exploded in the second half of the year. To position themselves for future revenue growth, tech companies are now adjusting their M&A strategy to focus more on a target’s business resilience, digital technology alignment and to gain market share through consolidation.”

Overall, technology executive respondents are optimistic about the future, with nearly half (47%) expecting profitability to fully rebound this year (vs. 23% across all CCB respondents). And while technology respondents acknowledge that the outlook for short-term organic growth is challenging, 51% plan to pursue M&A in the next year to sustain growth.

However, optimism is tempered by an increasingly competitive deal market and the ongoing impact of geopolitical tensions. Seventy-eight percent of technology executive respondents expect to see more competition in the bidding process for assets in the next 12 months, primarily from private capital, while 81% believe geopolitical challenges have forced a change in their strategic investments.

Tech talent and long-term value initiatives are top of mind

The pandemic has created a shift in how technology companies think about securing the best talent, according to the CCB. With remote collaboration now giving businesses a wealth of opportunity to source talent, 82% of technology CEO respondents specifically say it has changed how they view their future state operating model. Meanwhile, 91% of tech CEO respondents indicate that employees have influence over their strategy reviews.

Beyond the talent agenda, executives are turning their attention more broadly to how they can future-proof their business in the current landscape. Seventy-seven percent of all tech respondents believe it is important for companies to articulate a broader narrative around long-term value creation to all stakeholders. Similarly, most tech executives believe there is greater awareness among stakeholders around the environmental and social impacts of business (79%), and that focusing purely on profit optimization is not sustainable (86%).

Ravid says: “With the tech sector coming under increasing scrutiny because of factors including social trust, privacy, data use and regulatory compliance, customers and employees are now looking to technology companies to take the lead on environmental and social change. By readily disclosing performance measures and being transparent about issues such as sustainable operations, energy management and product consumption, companies can build trust and credibility within and outside their organization.”

For more information on the EY Global Capital Confidence Barometer, visit ey.com/ccb.

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About the EY Global Capital Confidence Barometer

The Global Capital Confidence Barometer gauges corporate confidence in the economic outlook and identifies boardroom trends and practices in the way companies manage their Capital Agendas — the EY framework for strategically managing capital. It is a regular survey of senior executives from large companies around the world, conducted by Thought Leadership Consulting, a Euromoney Institutional Investor company.

The panel comprises select EY clients across the globe and contacts and regular Thought Leadership Consulting contributors. From November 2020 until January 2021, Thought Leadership Consulting surveyed on behalf of the global EY organization a panel of more than 2,400 executives in 52 countries; 82% were CEOs, CFOs and other C-suite-level executives. Respondents represented the following sectors: Financial Services; Telecoms; Consumer Products and Retail; Technology, Media and Entertainment; Life Sciences; Hospital and health care providers; Automotive and Transportation; Oil & Gas; Power & Utilities; Mining & Metals; Advanced Manufacturing; and Real Estate, Hospitality and Construction. Surveyed companies’ annual global revenues were as follows: less than US$500m (25%), US$500m-US$999.9m (26%), US$1b-US$4.9b (25%) and greater than US$5b (24%). Global company ownership was as follows: publicly listed (60%), privately held (40%).