Tech M&A: A return to pre-pandemic levels?
Following a surge in M&A activity in 2021 and the first quarter of 2022, deal making in the Tech sector slowed significantly through the remainder of 2022.
A number of factors contributed to the decline in activity during 2022. Central banks across the world increased interest rates in a bid to curb rising inflation. This pushed up the cost of capital for investors and purchasers while raising the spectre of recession and falling earnings. Russia’s invasion of Ukraine added further volatility and uncertainty to the mix.
The deteriorating macro-economic and geo-political conditions prompted a sharp fall in the price of publicly traded technology stocks in Q2 2022, particularly in the US, and led to a large gap opening up in valuation expectations between sellers and buyers in the private Tech M&A market over the course of the year. In the second half of 2022 many Tech M&A sale processes took much longer to complete than had been the case in previous years, as buyers conducted more rigorous due diligence, and some sellers decided to postpone divestments and wait for more favourable market conditions.
Many of these issues were not unique to the sector and Tech M&A trends were consistent with a wider decline in M&A activity generally in 2022.