No Match Found
In 2023, public companies in the tech sector slowly inched their way back up from lows, battling against lower domestic revenues as consumers curb spending behaviors due to increasing prices, lower international revenues as the dollar becomes more expensive, and higher expenses as supply chains continue to recover from pandemic shocks. Investor confidence and optimism surrounding tech company proactiveness was offset by the market volatility brought on by bank stress and compounded by persisting inflation and ongoing global geopolitical tensions. Facing investor pressure, conservatism has seeped into the management and boards at many tech companies, who have been orchestrating various cost-cutting measures to counterbalance macroeconomic setbacks as well as course-correcting pandemic hiring activity associated with growth initiatives.
Big tech companies continue to face pressure from regulators around the world due to potentially anti-competitive behavior and data security concerns. In the social media space, Meta was forced to sell Giphy due to the UK competition regulator blocking the deal. Despite those pressures, we do see a good probability of one of the largest tech deals in history closing in the second half of the year, as Microsoft receives approvals, relating to its acquisition of ActivisionBlizzard, from regulators in the EU, Japan and China, among others, after challenges domestically and in the UK.
Large corporates, armed with balance sheets healthier than those seen in previous recessionary periods, continue to contemplate strategic acquisitions in the back half of 2023, pending macroeconomic conditions. Financial sponsors, sitting on relatively high amounts of uninvested capital, will also look to take advantage of attractive valuations this year and engage in take-private deals with companies they believe the public markets have punished too harshly. Despite high amounts of dry powder, increasing interest rates have led to increased debt rates so financial sponsors may play the waiting game until conditions ease, or consider creative transaction structures.
The first half of 2023 did show signs that private equity is still finding ways to deploy their capital despite the debt rate headwinds — although private equity’s share of total Q1 2023 deal volume was only around 10%, its share of total Q1 2023 deal value surpassed 60%, driven by high-value tech deals such as Symphony Technology Group’s $1.5 billion acquisition of Momentive and Silver Lake’s $12.5 billion announced all-cash acquisition of Qualtrics.
Overall, we note the prevalence of a cautious optimism in tech M&A, accentuated by 20% and 40% increases in volume and average deal size, respectively, in Q1 2023 (excluding megadeals). Financial sponsors are leading the charge and starting to sweep up companies whose valuations have dropped dramatically from 2021 and 2022 highs, while strategic acquirers exercise patience and remain selective until macroeconomic conditions further stabilize. As of mid-May, total deal volume in the first half of 2023 is still only 50% of what was transacted in the second half of 2022, but we are seeing corporates starting to step in and become comfortable doing deals relative to the low levels in Q4 2022.
Looking ahead, the future is improving, and we expect to see continued upward momentum in the tech sector, stemming from an environment conducive to both compressed multiples, competitive technological innovation and a backlog of IPO candidates.
Companies face markets being reshaped by technology and disrupted by geopolitical unrest, a global pandemic and economic shocks. As a result, CEOs are turning to transformative acquisitions to reposition and reinvent their businesses for long-term success. Companies are also beginning to crack the code on how to make big, transformative deals successful: leveraging experience, early and sustained investment in integration, and a commitment to creating and implementing new long-term operating models.
Learn more about leading practices and transformational mindsets in PwC’s new M&A integration report.
“While 1H2023 has been slow, deal activity is expected to recover towards the later part of 2023.”