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The global tech M&A trends and hotspots thriving under COVID-19

The global tech M&A trends and hotspots thriving under COVID-19

COVID-19 turning technology "from a ‘nice to have’ to an absolute necessity”

Credit: Dreamstime

The global technology sector has seen mergers and acquisition (M&A) activity accelerate during the COVID-19 pandemic in the second half of 2020, putting a spotlight on tech companies within the B2B and semiconductor spaces, among others. 

This is according to consulting giant PwC, which flagged in its recent Global M&A Industry Trends analysis report that the momentum seen in cloud, server and connectivity accelerated during COVID-19, and as a result, tech companies have become “attractive” M&A targets. 

This has been particularly noticed within the second half of 2020, during which the report claimed the tech sector has seen an increase in M&A activity, higher valuations, "historic" levels of venture capital funding, as well as "numerous" tech initial public offerings (IPO).

Trends

Broadly, PwC claimed that the trends that existed within the technology industry pre-pandemic are still around, but have been accelerated in the wake of pandemic mitigation efforts. This, the report claimed, has turned technology "from a ‘nice to have’ to an absolute necessity”. 

The acceleration in the B2B technology sector in particular has been noticed in the cloud computing, e-commerce, software-as-a-service and IT security industries. Meanwhile, the sectors finding a boost in user engagement from remote working and stay-at-home orders include streaming services, gaming and video conferencing services, but has been dependent on lockdowns. 

“The trend has been less pronounced in China, for instance, where restrictions have eased considerably in recent months and people have been able to return to work and other activities," the report noted. 

As the demand for tech companies increase, the barriers for entry are expected to lower, with buyers to supplement their existing capabilities and move to a “more predictable” as-a-service operating model, according to the consulting giant. 

Despite the lowered bar, the high demand for tech solutions has brought with it high valuations, particularly with stock deals in the semiconductor space, according to PwC. This includes “megadeals” (valued at over US$5billion), between Nvidia and ARM, AMD and Xilinx, Analog and Maxim; and Marvell and Inphi, which together totalled US$105 billion.

Hotspots

The semiconductor industry, as a result, was flagged by the consulting giant as being a hotspot within the technology, media and telecommunication (TMT) sector. 

Moving forward the semiconductor sector is expected to see more companies use their own stock as a “key currency” in order to hang onto their competitive edge, PwC claimed. 

“The attractiveness of the semiconductor space reflects increased demand for NAND and DRAM as companies pursue memory-intensive areas such as 5G, data centres, cloud computing and the industrial Internet of Things (IoT),” it stated. 

Meanwhile, with many people unable, or choosing not to, leave their own homes, PwC stated there has been an acceleration in the shift to online banking. Therefore, fintech companies were identified as another hotspot due to them succeeding while traditional banks faltered, with the consulting giant claiming that this has driven acquisitions and minority stakes. 

“As credit card activity remains largely virtual and consumers spend more online, we expect to see more M&A transactions and investments in the payments space,” PwC noted. 

Video game companies were picked as a third hotspot that has thrived during the pandemic, with increased sales leading to what the consulting giant referred to as “destigmatised consumer adoption”, which was even seen from outside of the gaming community. 

2021 and beyond

The outlook is expected to remain strong, with the report claiming that even more technology companies are still looking to make their move and go public in 2021, and in turn will lead to “ample” consolidation opportunities, either from companies looking to broaden or double down on their service offerings. 

In particular, the global 5G rollout is expected to lend itself towards technological development, and therefore to further market consolidation. 

“We expect the biggest beneficiaries of consolidation to be the large technology companies, though increased regulatory oversight could limit megadeals in some more heavily scrutinised subsectors," the report noted. “With the TMT sector proving to be exceptionally resilient to the COVID-19 environment and with considerable further potential for consolidation, we believe that TMT M&A activity will continue to be strong in 2021 and beyond.” 

However, geopolitical and regulatory concerns are expected to weigh in on tech M&A activity in the year ahead. 

Already ongoing is regulatory pressure on big technology companies, with PwC flagging Facebook’s lawsuits in the US brought on by the US Federal Trade Commission and 46 states surrounding its monopoly. 

Meanwhile, regulatory oversight of public tech companies is also taking place in China, as well as on those seeking initial public offerings. 

“Although regulatory pressures appeared to do little to reduce deal activity during the second half of 2020, they may curb enthusiasm for cross-border M&A transactions, megadeal activity and further consolidation of platforms going forward," PwC noted. 

Ongoing trade tensions between China and other nations are also expected to have an impact, which include the acquisition of key technologies in the US, an increased scrutiny of Chinese investments by Europe and India banning a number of Chinese apps in July 2020. 


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