5 minute read 28 Apr 2021
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Tech execs focus on growth amid increasingly competitive M&A market

By Barak Ravid

EY-Parthenon Americas Leader

Energized by all things at the intersection of technology and strategy. Passionate about the strength of diverse and inclusive teams. Love sailing, biking, soccer, snowboarding. Father of three girls.

5 minute read 28 Apr 2021

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Technology executives are optimistic on revenue growth; they see M&A as an important driver.

In brief
  • Many tech executives are optimistic that revenues, profits and growth will continue in 2022.
  • Mega deals increased in 2020; more deals are anticipated as tech M&A growth explodes.
  • Stakeholders are increasingly invested in the societal and environmental impacts of their business.

Nearly half of technology executives in the 23rd EY Global Capital Confidence Barometer (pdf) (CCB) survey said that they expect revenue growth to continue in 2021, with profitability fully rebounding by 2022. In an acknowledgment that organic growth could be difficult in the near term, 51% say they plan to pursue mergers and acquisitions (M&A) in the next year to sustain growth.

Companies across the tech sector continued to outpace the market during 2020 with respect to total shareholder return (TSR). According to a recent EY analysis, tech sector TSR beat the market as a whole and is now significantly outpacing sector revenue and margin growth, which continues to decelerate. As a result, many companies have been able to generate substantial shareholder returns despite more modest growth in revenue and profitability. With much of the growth in shareholder return not being “earned” through revenue expansion, many companies are concerned about how to restore underlying revenue growth, particularly for companies that aren’t top quartile revenue performers.

M&A outlook


of technology executives say they plan to pursue M&A in the next year.

State of tech M&A

Technology M&A rotated between historically low and high quarters of activity during 2020. Deal activity all but stopped at the beginning of the year as tech executives navigated the pandemic. Companies pivoted quickly, however, and tech M&A exploded in the second half of the year. To position themselves for future revenue growth, tech companies are adjusting their M&A strategy to focus more on a target’s business resilience, digital technology alignment, and to gain market share through consolidation.

Despite uncertainty and increased regulatory scrutiny, tech companies pursued more transformative deals in the past year. Megadeals that were US$5 billion and above made up 59% of all global technology sector deal value in 2020, up from 47% of deal value in 2019. As organic growth decelerates for many tech companies in the future, M&A activity will be an increasingly important lever for growth. Sixteen percent of tech companies surveyed said they plan to pursue transformative deals that are valued at US$5 billion or more in the near term. This will be increasingly important going forward as multiple expansion, or an increase in the price-earnings ratio due to sentiment rather than fundamentals, may slow down. Highly acquisitive companies tend to outperform and generate significantly higher shareholder return.

While the tech deal market is expected to remain healthy, 78% of tech executives surveyed in EY’s CCB report indicate that they expect to see increasing competition in the bidding process for assets in the next 12 months, primarily from private capital. Non-tech companies are acquiring capabilities in software, IT services and internet commerce verticals to digitalize offerings, while private equity players are placing big bets on securing applications and IoT devices as well as risk and compliance.

No discussion of the tech M&A market would be complete without mentioning the unprecedented growth in special purpose acquisition company (SPAC) activity. SPACs became a popular vehicle for companies seeking to go public following the most turbulent pandemic months as they provided greater pricing certainty. This took off quickly in the following quarters to reach a high in the first months of 2021, when SPACs represented nearly 50% of all tech M&A by value1.With a historic number of SPACs chasing companies looking to go public, valuations have increased considerably, also driving valuations in the more traditional M&A market.

Investing in talent

In the wake of the pandemic, tech executives have been compelled to examine all operational aspects of their business. They plan to increase strategic investment in their own digital transformation, customer engagement and workforce management. Talent availability has always been an issue in the highly competitive tech sector and the pandemic has created a shift in how companies think about securing the best talent. With remote collaboration giving companies a wealth of opportunity to source talent, it’s not surprising that 82% of tech CEOs agree that it has changed how they view their future state operating model.

For tech companies, it is important not only to attract and retain their workforce, but also to invest in tools and technologies necessary for success. As companies start to think about new “return to work” protocols required in the post-pandemic era, they can be strategic to ensure a smooth transition. Talent remains top of mind for companies, with 91% of tech CEOs indicating that employees have influence on their strategy reviews. It is important to prepare employees by communicating process, timelines and safety precautions to ease anxiety. Tech companies must also rethink their employee value proposition in terms of how to balance remote vs. in-person activities while continuing to keep employees engaged. A one-size-fits all model will not work here. Instead it is important to keep flexibility and accountability top of mind and ask for employee feedback throughout the process.

Preparing for the future

The technology sector has traditionally been a leader in the environmental, social and governance (ESG) movement. With trust in the tech sector possibly eroding because of several factors including social trust, privacy, data use and increased regulatory attention, companies should continue to keep ESG initiatives top of mind. These include sustainable operations, energy management, product consumption and production, and especially transparency, ethics and data privacy. Customers and employees are looking to technology companies to take the lead on change, rather than just comply with regulation. Many tech executives surveyed agree that there is greater awareness by a broader set of stakeholders concerning environmental and social impacts of business and focusing purely on profit optimization may not suffice going forward.

Companies should take a “long view” of which pandemic-induced changes will stick, and make decisions focused on creating long-term value — human, financial, societal and consumer. Going forward, 77% of tech executives say it’s important that companies have a broader narrative to articulate to all stakeholders around long-term value creation. By being transparent about these initiatives and disclosing performance measures, companies can build trust and credibility within and outside their organization.


Technology executives remain optimistic about future revenue and return to profitability. Transactions will play a central role in recovery. Acquisitions will help jump-start revenue increases through new products, markets and solutions, while divesting of non-core businesses will help reshape portfolios out of declining or slower-growth businesses. While thinking about how to future-proof their business, tech executives should continue to focus on talent and long-term value initiatives.


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.

About this article

By Barak Ravid

EY-Parthenon Americas Leader

Energized by all things at the intersection of technology and strategy. Passionate about the strength of diverse and inclusive teams. Love sailing, biking, soccer, snowboarding. Father of three girls.