Tech Execs Expect Record M&A Activity in Spite of ‘Low-Growth’ Economy

A vast majority (91%) of technology executives are confident that the technology M&A market will remain in record territory, according EY’s 15th biannual Global Capital Confidence Barometer – Technology (CCB), which had 255 respondents from technology companies around the world.

Nearly two-thirds (62%) of tech respondents see the tech M&A market holding steady and 29% expect improvements in what has been a record-setting pace this year.

According to the most recent EY Global technology M&A report, aggregate disclosed deal value for the third quarter of 2016 was US$155.5 billion – the third-highest quarter ever on record – and the pace of deal volume was only 4% behind 2015’s post-dot-com record.

“As tech and non-tech companies alike are being disrupted by innovative digital technologies, they are turning to M&A in search of solutions,” says Jeff Liu, EY Global Technology Industry Leader, Transaction Advisory Services.

“Appetite for deals has sharply increased in the past six months, with half of technology executives expecting to actively pursue M&A in the next 12 months.”

Technology companies are doing deals for different reasons inside and outside their own sector. Within the technology sector, deals aim primarily at growing market share (46%) and addressing customers’ changing digital behaviors (43%), executives say.

Companies are making acquisitions in other sectors primarily to acquire talent (76%) and new product or service innovation (41%).

When it comes to factors that could hold dealmaking back, the survey raises concern around increasing macroeconomic risk. Few technology executives (17%) see global economic improvement on the horizon, and nearly half (47%) see a slowdown in international trade flows due to economic nationalism and protectionism.

Executives see significant political instability both at home (60%) and abroad (29%) as a risk to their core business. There are also steep declines in confidence regarding credit availability and equity valuations, down 41 and 25 points respectively from the last year.

Despite the risks, overall confidence in corporate earnings has started to bounce back in the past six months. Sixty percent of technology executives describe themselves as confident in this CCB, up 22 points from the last survey.

Liu says: “Rather than rolling over in the face of slow growth, geopolitical uncertainty and concerns over both equity and credit, technology executives appear to be rolling with the punches. This tenacity shows both in deals already done and in dealmaking intentions moving forward.”

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