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How a focus on revenue growth can help tech companies navigate recession

Low valuations and record cash levels present unprecedented opportunity for tech M&A.

In brief

  • New research finds tech companies that focused on revenue growth and value creation over five years saw TSR 2.1x that of low-growth tech companies.
  • Now may be the most opportune time in decades to make strategic tech deals, as many acquirers are sitting on unprecedented levels of cash.
  • Integration remains the single most important factor for tech M&A success and ultimately long-term revenue growth.

A new EY-Parthenon study reveals that in times of economic chaos, technology companies that stay on the offensive and maintain a sharp focus on revenue growth will likely be rewarded by the market.

EY-Parthenon team tracked the results of more than 700 global publicly listed technology companies with a market cap above $1 billion from January 2017 through July 2022. The research indicates that companies that pursued mergers and acquisitions (M&A) during that period generated higher total shareholder returns (TSR). Despite market volatility due to the pandemic, high interest rates, inflation and geopolitical uncertainty, TSR for these high-growth tech companies was 2.1x low-growth tech companies during the past five years.


Within high growth companies, acquisitive companies report substantially higher returns than the remaining set 


An EY-Parthenon study of TSR during the 2008 Great Recession showed similar results.¹ Companies that raised capital and invested in M&A following the 2007–2009 period had a significant advantage over their competition.


From the Great Recession to the COVID-19 pandemic, the markets have historically rewarded companies that focused on revenue growth, particularly via acquisitions. The new study indicates that the trend continues, and many CEOs in the technology, media and telecom (TMT) sector appear to have taken note.


In the newly released EY CEO Outlook survey, 54% of TMT executives say they plan an acquisition within the next year. However, executives also say that given current economic conditions, they are taking a more cautious approach when determining which targets to acquire.² Their top deal drivers include investing in early-stage companies to enhance portfolios and strengthen talent pools and access to new markets in countries they currently do not serve.


In the new TSR study, the story and the results are different for tech companies that did not focus on revenue growth. They suffered over the long term with market returns 20% lower than those who did not.


Further analysis indicates that inorganic growth was better rewarded than organic. Serial acquirers generated 1.6x shareholder return than those that pursued organic growth.

The market rewards all types of tech acquisitions

The latest EY study of TSR for technology companies looked at three types of acquisitions, including transformative, strategic tuck-ins and scale. Of the companies studied, all three types of acquisitions were rewarded with high TSR. Potential reasons for higher rewards include reduced time to market for products and customer acquisition, and market expansion that often accompany acquisitions.

Companies that pursued transformative or scale-based deals earned total shareholder return of 166% and, similarly, companies that went for strategic or tuck-in deals earned total shareholder return of 179% from January 2017 through July 2022. In comparison, less acquisitive technology companies generated 118% total shareholder returns, about 50% less than more active acquirors. Acquisitions of all types can help a company to jump into a new market or ramp up a new technology quickly. M&A can also solve time-to-market and talent issues far more quickly as compared to organic growth. For example:

Tuck-in acquisitions

  • A company pursued dozens of tech tuck-in acquisitions during the past five years to drive innovation and top-line growth, ultimately helping it build capability around cloud security, application performance monitoring, artificial intelligence and analytics. These acquisitions have been accretive and contributed 77% to the company’s total shareholder return during the same period.

Transformative deals

  • In a series of transformative deals, a company acquired an enterprise security company and a virtualization technology company to accelerate its expansion into the infrastructure software market. Successful integration of these transformative software deals allowed the company to build its software portfolio and to help increase revenue by 30% in three years.


  • Another company pursued an acquisition to scale its product portfolio and address opportunities in the automotive, industrial and Internet-of-Things (IoT) markets. The acquisition helped to bolster the company’s revenue by 46% in the three years following the acquisition.

Why recession could bring greater rewards for those who focus on revenue growth


Several factors indicate that the market tends to reward revenue growth via acquisitions in the long term, helping companies to lessen the impact from economic turbulence brought on by the 2008 Great Recession or the pandemic. Lower valuations due to market turbulence combined with record levels of cash on hand may present an unprecedented buying opportunity for technology companies seeking to revise operations and business models to compete effectively in the future.


Unprecedented levels of cash reserves combined with lower valuations may entice buyers to make transactions that they previously found too expensive. According to a report by Kellogg Insight³ in April 2022, US companies were sitting on $5.8 trillion in cash reserves due to nearly a decade of record profits and an economic boom that spanned several decades. The more than 700 technology companies studied in the most recent EY-Parthenon TSR study had cash reserves of $1 trillion.


At the same time, a recent EY analysis of Capital IQ data⁴ found tech companies also experienced a 30% decline in valuations since December 2021. Lower valuations may also benefit private equity buyers who want to acquire companies at lower valuations with hopes of later selling the company for a profit.


Integration strategy and execution is key to success – three focus areas


Regardless of economic environment, getting the integration of two entities right is the single most important factor to M&A success.


Focusing on the following three areas will help technology companies successfully integrate targets and accelerate revenue growth. These include:

  • Agile integration planning and execution: create structured and dedicated teams that include a steering committee, platform teams, an integration management office (IMO), special issue teams and dedicated planning teams; leverage integration playbooks, benchmark and track integration timelines, and increase reporting frequency.
  • Redefining operating model and organizational design: establish a go-forward operating model that answers key questions regarding the future of the combined entity, structure of new business units and product lines, adoption and sharing of tech tools such as integrated development environment (IDEs) and frameworks; align top management with the vision and mission of the combined entity to achieve faster decision-making and clear communication to employees, customers and suppliers.
  • Capturing cost synergies: get savings by establishing common development platforms, IP reuse, increased bargaining power with vendors, and consolidated functions and systems; synchronise non-core functions, including strategy and corporate development, finance, human resources, IT and legal; right size sales, general and administrative teams for cost savings — this can be achieved by eliminating redundant roles, common sizing sales and marketing practices, training the sales force on bundled software and services, and aligning dedicated leads on product lines and end markets

As illustrated below, companies can also adopt faster scaling practices through product alignment and go-to-market strategy acceleration.

Recommendations for your M&A strategy

  • Continue to pursue inorganic expansion in line with the long-term strategy of the company, even in turbulent economic times, as new capabilities can often be acquired at bargain rates
  • Adopt tech M&A strategies based on the company’s requirements, including transformative, scale and tuck-ins, as research indicates these strategies can generate higher returns
  • Focus on tech M&A efforts that will enhance your existing business portfolio, new market entries and products
  • Establish a targeted operating model regarding the combined entity, structure of new business units, map product lines, and streamline software and systems
  • Reach consensus with top management concerning the integration process to achieve faster decision-making and clear communication to employees, suppliers, customers and other stakeholders
  • Evaluate joint product development opportunities to rationalize R&D and assess technical debt
  • Align product roadmaps within 6 to 12 months

Rahul K Agrawal, Deepanshi Jerry and Akrant Bhardwaj contributed to this article.


Tech executives can navigate the current economic volatility by adjusting their strategy and preparing for the future with strategic acquisitions. EY research indicates the market typically rewards companies who focus on revenue growth during periods of recession and economic turbulence, with all three major types of acquisitions often resulting in an uptick in TSR. However, proper planning for tech M&A, integration and scaling are critical for success.

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