M&A In Focus: What’s Next for Emerging Tech?

Annual tech acquisition spending in 2021 soared above $1 trillion for the first year in history, as all major buying groups posted record deals. Valuation, too, hit unprecedented levels. But where does the priced-for-perfection tech M&A market go from here? Experts from S&P Global Market Intelligence and 451 Research came together to explore the drivers behind the surge in M&A activity.

Top Insights:

1. Tech M&A Activity: Record levels, no matter how you count it

In the previous up through last year, we have been measuring M&A spending in the measly hundreds of billions of dollars. Well, not anymore. We have gone in order of magnitude higher. That breakthrough year has been last year, with $1.2 trillion. Yes, trillion with a T, basically twice the previous record.

2. Tech M&A Valuations: Buying has never been pricier

While economists and investors are worried about the implications of inflation, tech acquirers have already mostly priced it in. Valuations in the tech M&A market in 2021 soared to their highest-ever level, nearly twice the average over the past decade, according to the 451 Research M&A KnowledgeBase. Excluding SPAC transactions, buyers paid an unprecedented 4.3x trailing sales in tech deals last year.

Financial acquirers paid higher overall valuations (5.8x trailing sales) than their strategic counterparts in 2021.

3. Tech M&A Sector Outlook

Information Security

Information security has long been one of the most active sectors in tech M&A for many years. In 2021, total deal value was more than 3x what had been in the highest previous year. Where we have seen activity in the space, some of the top categories we have seen around identity and access management.

Machine Learning and AI

In 2021, deal volumes almost doubled to 2020. Why is that? This is a general-purpose technology. And then a general-purpose technology has opportunities in the crisis and beyond the crisis and into everyday life.

Machine Learning pervades all sectors and all the sort of levels of the technology stack. So, you can see its influence, it may not be the entire reason why a deal gets done, but it's having increasing influence in so many deals, especially in vertical deals now, vertical industries.

Customer Experience

When we talk about CX, it really is all about trying to understand what's going on within the investments of the technology to improve the overall customer experience. And it has been a massive market, and it's been booming over the past decade.

And it really is all about everything from ad tech to match to sales, commerce, and service. A lot of the ISVs are looking to invest their actual organic growth and acquisition growth to make sure that their applications are less complex and more personalized for their employees and their customers, changing a lot of investments in M&A in the future.

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