A record year for technology M&A – what’s behind the boom?

Our data shows that technology deals exceeded USD1trn for the first time, 71% higher than in 2020, accounting for nearly 20% of the global transactions market by value and more than 22% by volume.

  Data provided by Refinitiv. Figures represent deals announced between 1 January 2021 and 31 December 2021. 

In an extraordinary year, we saw transactions at every level of the market, from small start-ups being bought for their IP right through to megadeals, as well-funded, high-growth companies looked to expand into new markets, buy into new technologies or hire new talent.

For example, DoorDash, the U.S. online grocery delivery business, was among growth companies making bold acquisitions when it completed a EUR7 billion deal to buy the Finnish delivery company Wolt, to expand into a wide range of markets around the world.

Other deals included Etsy’s acquisition of the vintage and pre-owned clothing app Depop for USD1.6bn, while Peloton invested in a traditional industry rather than a technology company, buying exercise equipment maker Precor, expanding its reach and manufacturing capacity.    

These deals are part of a wider trend, with big technology companies making acquisitions at an accelerating pace across many markets. 

Evidently, these companies, whose products and services have long been distributed worldwide, are now global in their footprint too. It’s also an indication of a growing confidence that we are experiencing a sustained trend, rather than a second dot.com bubble.

Although the creation of Special Purpose Acquisition Companies (SPACs) in the U.S. has fallen off dramatically after 18 months of phenomenal growth, SPACs continue to energise and disrupt the technology M&A market as they look for companies to buy with money they have raised.

More widely there is growing competition for assets, with investors concerned they will miss out on opportunities if they do not move fast.

Pandemic effect

Part of the reason for this growth is down to the pandemic effect, with the crisis clearly proving that the digital economy is now central to our lives and how we interact.

Consumer and user-facing technologies have become so normalised that this has driven transactions and unleashed record amounts of financing to invest in full-blown M&A or collaborations. One of Germany’s most successful IPOs last year was for Bike24, an online platform for bikes and bike spares.

Environmental and socially responsible technologies – such as smart energy grids and traffic control systems – are also attracting investors eager to deploy capital.

But less everyday technologies are also making more of a mark than in recent years, as we’ve seen with the growing activity around augmented and virtual reality technologies, such as the Metaverse, and in quantum computing, where IonQ chose to team up with a SPAC to become the first publicly traded pure quantum business.

Diverse investors

Traditional businesses are driving technology M&A as they look to accelerate their own digital transformation. Sometimes this will be through straightforward acquisitions but, commonly, collaborations and corporate venturing are the chosen route, at least initially.

Buying stakes in early stage technology companies allows traditional businesses to test the water, on a “try-before-you-buy” basis. It’s a strategy being vigorously pursued by a number of household names in finance through a range of platforms, ranging from incubators and captive venture funds through to more bespoke joint ventures with other market players. 

PE houses continued to be big investors, notably in the software sector, attracted to assets that offer good profit margins and stable revenue streams or the chance to buy and build a portfolio of businesses with attractive synergies. While they can still see the chance to sell these assets on eventually, they seem willing to pay high multiples.

But an increasingly diverse range of investors, with huge amounts of capital to deploy, also entered the market in force, including sovereign wealth, hedge and pension funds, and investment banks.

Their presence forced some legacy investors to up their game, investing higher sums than they may have previously and started to take a leading role in funding rounds, pointing to their experience in the sector as a key differentiator. For technology companies seeking investment, the size of the cheque is only one concern; the relationship that comes with it can be equally important.

A sustainable boom?

Whether the boom in technology M&A will be sustained remains open to question.

A number of potential hurdles could slow the extraordinary growth we are currently seeing, not least the soaring valuations that technology companies are achieving.

Regulation could also chill the market, particularly as tighter foreign direct investment controls and national security screening in a growing number of jurisdictions are disproportionately focused on technology assets.

Continuing trade tensions between the U.S. and China, so often focused around key technologies like 5G and semi-conductors, continue to unsettle the market to some extent.

But the underlying fundamentals of the market, including continuing ready access to financing at affordable rates and the growing appetite for technology across the economy and society, remain very strong.

It may take a major shake-up of the global economy to end this period of explosive growth.