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Tech M&As to soar to new highs in 2021

Thu 27 May 2021

After dropping off due to economic strain in the first half of 2020, mergers and acquisitions (M&As) involving technology providers are set to surpass previous highs recorded in 2018.

This is according to new research from Gartner, whose study also found that economic recovery in 2021 as COVID-19 vaccines began distribution facilitated a swift rebound in M&A activity in late 2020 and into this year.

This is illustrated in the data analyst’s findings showing that activity in Q4 2020 was “higher than in the last two years”. Acquisitions of communications providers led the rebound in the second half of 2020, followed by acquisitions of services and software companies.

“Market conditions for deal making will continue to improve as volatility stemming from COVID-19 subsides,” says Gartner senior research director Max Azaham.

“Tech CEOs pursuing acquisitions should anticipate increased competition for targets and take steps to gain advantages over other acquirers to earn seller acceptance.”

There has been a rising interest recently from financial services organisations — particularly private equity firms — in acquiring technology providers. In the calendar year 2020, acquisitions of software providers from such organisations represented more than 50% of all tech acquisitions. 

According to Gartner, the most significant M&A activity gains in the second half of 2020 involved financial acquisition of communications providers (93% growth). Meanwhile, acquisitions of services providers by financial acquirers were 30% higher in the fourth quarter of 2020, compared to the prior two years’ average.

There was a consolidation of providers with high degrees of overlap in the services and software markets — rising by 65% and 40% in the second half of 2020, respectively. Azaham says these consolidation trends suggest tech CEOs ‘must be prepared for competitive landscapes where key competitors merge’.

“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,” says Azaham.

The report also stressed the importance for new acquirers in maintaining customer experience standards in the companies they purchase. The report advises, “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.”

CIO customers of vendors undergoing an integration expect minimal service disruptions and transparent communications on product, pricing and support changes, if any. 

Azaham says, “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.”

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