Tech M&A Trends - Outlook 2021
Current trends in the busy tech M&A space point to a possible market correction before 2021 – are segments that are working to build a greener, healthier future those best placed to weather the storm?
Over the next few years, areas such as automotive and healthtech are set to expand, while others, including digital marketing and e-commerce, are expected to plateau.
That’s according to our latest report, The Tech M&A Outlook: 2021. So, what are the current trends and drivers, and what can we expect between now and 2021?
Trends and predictions
Capital is cheap, investor confidence is strong, and the level and quality of innovation is high. Yet, despite these close-to-perfect conditions, overall the tech M&A space is witnessing a slight loss of momentum.
In 2015, we saw the volume of transactions and the total value of deals peak, but they both fell in 2016 and 2017.
There was a slight rebound last year, but NASDAQ still ended 2018 with the sharpest drop since 2009. There has been an early recovery since the start of this year, but there is no denying that these familiar patterns suggest an increasing risk of a correction before 2021.
There is reason to believe that some areas of tech will be best placed to weather the storm. These are the subsectors that remained strong throughout 2018 by securing the attention of financial buyers, and which are now flexing their tech M&A muscles.
Last year, private equity firms completed almost double the number of transactions they did in 2015. And with access to cheap debt predicted to continue, this trend is expected to carry on in the same vein between now and 2021, irrespective of a correction.
“Overall, trends have shown a correction from 2015’s peak volumes and total deal values to a low in 2017 and finally a slight rebound in 2018. This correction and rebound are indicative of M&A’s cyclical nature."
Financial buyers are putting their weight behind industries providing the solutions being demanded at policy level – those that are building a greener, healthier future and, in the most part, have governmental interest and backing.
Areas such as automotive tech and healthtech, as well as the technologies and software required to support them, are tipped to flourish between now and 2021.
The total transaction volume in the automotive tech market, which has included vertical software, embedded software and systems for vehicle autonomy connectivity, has remained stable since 2016.
Last year saw the highest ever level of venture capital investment, and all this suggests the sector will maintain momentum in the years ahead.
With climate concerns never far from the headlines, there is high demand for clean transport solutions that could be rolled out on a national level, and this could be playing a role in the market’s strength.
Healthtech solutions, such as online health services, electronic health records and medical hardware, is another area that has secured investor confidence.
The sector saw high demand from acquirers throughout the second half of 2018, with deals growing in size and scope in both the US and Europe.
Countries around the developed world are facing similar health challenges, such as ageing populations and increasing numbers of long-term conditions, and healthcare systems are in active pursuit of solutions that can drive down costs and improve outcomes.
Big name companies such as Apple and Philips are expanding into the sector, healthcare insiders are using their knowledge to build solutions, and nationwide schemes aim to accelerate the wide-scale adoption of medtech.
All of this is contributing to a fertile breeding ground for innovation, and attracting private equity investors.
Enterprise software and SaaS
Automotive and healthtech innovators are moving the dial on the possible with software that harnesses the power of machine learning (ML) and artificial intelligence (AI).
ML and AI, which are being used to stop automatic vehicles hitting pedestrians and more effectively diagnose lung cancer, are also creating enterprise software that delivers efficiency across sectors.
As well as applications such as stopping automatic vehicles hitting pedestrians and more effectively diagnosing lung cancer, machine learning (ML) and artificial intelligence (AI) are creating enterprise software that delivers efficiency in all sectors.
It’s also driving a shift in software as a service (SaaS). High-powered algorithms allow organisations across sectors to do more with their data, whether that’s for the good of their customers or the health of their patients, and progress is only expected to accelerate.
Echoes of this potential are being seen in the M&A market. The second half of 2018 saw large legacy players such as Microsoft, Oracle and Adobe make several acquisitions in the enterprise software space.
Innovative, horizontally applicable software from new players, it seems, is keeping these big players on their toes and contributing to a healthy and stable M&A landscape.
Towards future solutions
Traditionally, tech company performance and investor sentiment have closely correlated with disclosed tech M&A values. But since 2014, there’s been a growing disconnect.
Despite the market’s 2018 rebound putting the two back on a similar track, the resemblance to the run-up to the late 2000s crisis is evident.
Some subsectors, however, seem to have enough momentum to push them through any future turbulence.
Judging by their M&A performance over the last few years, automotive and healthtech, which are striving to answer the biggest questions of the day, as well as the techniques and methods needed to underpin innovation, fall into that category.
About Hampleton Partners
At Hampleton, we are aligned with our clients and look forward to helping them achieve success through M&A and growth finance, long into the next decade and beyond.
Hampleton Partners is at the forefront of international mergers and acquisitions and corporate finance advisory for companies with technology at their core. Hampleton’s experienced deal makers have built, bought and sold over 100 fast-growing tech businesses and provide hands-on expertise and unrivalled advice to tech entrepreneurs and companies which are looking to accelerate growth and maximise value.
With offices in London, Frankfurt and San Francisco, Hampleton offers a global perspective with sector expertise in: Automotive Technology, IoT, AI, Fintech, Hi-Tech Industrials & Industry 4.0, Cybersecurity, VR/AR, Healthtech, Digital Marketing, Enterprise Software, SaaS & Cloud and eCommerce.
To contact Hampleton about your M&A or growth financing queries or requirements, or simply to schedule a confidential conversation regarding technology M&A with Miro Parizek or any of our other Directors and Sector Principals, visit https://www.hampletonpartners.com/contact/ and submit your query using the contact form.
"Testament to the strength of financial buyers in today’s M&A market is the rapid ascent of private equity firms as top buyers in several sectors. We have seen financial buyers rank among the most prolific acquirers of 2018 in sectors such as digital marketing, enterprise software, healthtech and IT services."