Deal value started 2020 with the lowest it has been since 2016, as companies reduced or eliminated many forms of spending in response to the pandemic. After a few months of adjusting to the crisis, low interest rates — coupled with a potential vaccine in sight — improved M&A activity dramatically in the second half of the year. Deals include 14 mega deals (for a total value of $192 billion), compared to just four mega deals (totaling $33 billion) in the first half of 2020. But deal volume stayed low compared to prior years.
PwC's Deals Sector Leader John Potter discusses the trends driving deals and outlook for 2021.
PwC's Deals Sector Leader John Potter discusses the trends driving deals and outlook for 2021. Explore national deals trends
While the pandemic has hurt the broader economy, the technology sector has been less impacted, as consumers and businesses have looked for technology solutions to support new ways of working and living. As a result, tech deal-makers appear to have increasing levels of optimism, which could lead to record-breaking activity in 2021.
COVID-19 has acted as a catalyst for trends we expected to see later in the future. As a result, many companies are shifting to remote work for the longer term and need to pivot to SaaS-based offerings. That’s making tech companies attractive M&A targets to supplement companies’ existing capabilities.
We expect the tech sector, specifically SaaS, to continue to be a hot market as the shift to the cloud accelerates. A K-shaped recovery has divided the industry into “winners” and “losers,” as the larger well-capitalized companies will look to grow through transformative acquisitions and acquire competitors that are less equipped to weather the storm.
Capital will continue to flow easily in the tech sector, as indicated by the record VC funding in Q3 2020, which was one of the highest quarters ever, second only to Q4 2018. We expect this trend to continue into 2021.
On the downside, new laws and greater regulatory scrutiny have the potential to reduce activity and hamper FAANGs from closing deals in the new year. President Biden has vowed to get tough on big tech and has pledged to raise the corporate tax rate. However, continued global uncertainties may prevent Biden from cracking down on big tech in the near term.
“The outlook is clearly ramped-up acquisitions to help companies accelerate their repositioning into SaaS, or to capitalize on the new ways of working and living in a COVID-influenced world.”