Will the technology M&A cycle persist?

By Christopher A. Poggi, managing director, technology, media & telecommunications group, Wells Fargo Securities

Technology mergers and acquisitions (M&A) surged throughout 2018, with prominent multibillion-dollar deals such as the IBM acquisition of RedHat and SAP’s $8 billion purchase of Qualtrics.

Recent volatility has sparked concern around the strength of the M&A cycle, as well as the IPO prospects of vaunted venture-backed unicorns. However, the foundational drivers for elevated transaction activity remain in place.

Here is a breakdown:

  • Geopolitical jousting over trade has not crystallized into crippling policies, and rate hikes by the Federal Reserve have yet to significantly impact PE firms’ activity, which accounts for an increasing proportion of technology M&A.
  • The backlog of mature venture-backed companies could prove beneficial twofold. First, it will yield potential public debuts, and second, it could provide acquisition targets, perhaps boosting overall volume as sector leaders consolidate further.
  • Last, the evolution of underlying technologies, namely the shift to cloud-based offerings, the associated development of new hardware, and the necessity of innovation in cybersecurity to address increasingly sophisticated threats, will all continue to encourage M&A on the part of established incumbents.