Acquisitions of communications providers led the global merger and acquisition (M&A) activity rebound in the second half of 2020, followed by services and software companies.
According to analyst firm Gartner, competition for acquisition targets will continue to increase throughout 2022 as pandemic-driven market volatility subsides.
Notably, the analyst firm predicted that next year's levels will even surpass the high activity seen during 2018.
“Tech CEOs pursuing acquisitions should anticipate increased competition for targets and take steps to gain advantages over other acquirers to earn seller acceptance,” Gartner senior research director Max Azaham said.
According to Gartner, software remains the largest M&A category, with financial acquirers’ increasing interest continuing to drive higher activity in 2021. Almost half of software provider acquisitions in the past 12 months were undertaken by private equity firms.
The largest M&A activity gains in the second half of 2020 involved financial acquisitions of communications providers, which saw 93 per cent growth.
Meanwhile, acquisitions of services providers by financial firms were 30 per cent higher in the fourth quarter of 2020 compared to the prior two years’ average.
Consolidation of providers with high degrees of overlap increased by 65 per cent and 40 per cent in services and software markets, respectively, in the second half of 2020, compared to the average number of M&A transactions in 2018 and 2019, although transactions of over US$1 billion in value were excluded.
According to the analyst firm, these consolidation trends suggest tech CEOs must be prepared for competitive landscapes where key competitors merge, especially among service providers.
“Instead of making acquisitions or being acquired, tech CEOs will start to consider partnerships and ecosystems to level the playing field against larger companies resulting from consolidation in their markets,” Azaham said.
Gartner indicated successful acquirers will consider the implications for end-users and make customer experience (CX) a top priority across each stage of the M&A life cycle.
“Without empathy and a deep understanding of what motivates the existing customer base, organisations risk acquiring a customer base that will churn following deal closure,” Azaham said.
Research firm GlobalData recently weighed in on the M&A discussion, claiming global technology, media and telecommunication (TMT) M&A deals hit a value of US$323.1 billion during the first quarter of 2021, making it the strongest sector for deal value.
In May, communications software developer Amdocs bought Australia-founded enterprise cloud computing consulting firm Sourced Group for a net consideration of US$75 million in cash to expand its portfolio into the cloud.
In addition, US-based strategy consulting firm Altman Solon also struck a deal last month to acquire Australian consulting firm Venture Consulting.
Accenture has also been busy on the acquisition front, snapping up Industrie&Co, operational technology provider Electro 80, supply chain and logistics consulting firm GRA, cloud-native solutions provider Olikka, SAP and cloud solutions technology firm Zag, data analytics and supply chain management company Icon Integration and business strategy and econometrics firm AlphaBeta.
In December, Salesforce confirmed it had struck a deal to acquire enterprise communication platform provider Slack in a mega deal worth US$27.7 billion.