The coronavirus pandemic has had a negative impact on tech mergers and acquisitions (M&A) in 2020.
The pandemic is driven uncertainty has resulted in a slowdown of acquisitions in the tech industry. The first half of 2020 has witnessed a significant decline in the value as well as the volume of tech M&A, according to a recent PricewaterhouseCoopers (PwC) report. The M&A deals are at $73 billion in the first six months of this year, which is the lowest since 2016 while, the deal value is down 58%.
Several businesses are facing challenges associated with cash flows, so investors are focusing on attractive valuations. Investors are also expected to look out for control transactions as governance concerns that have resulted in an upward trend in buyouts for the past few years. Till the mid of 2020, SaaS and cloud have helped drive the software sector while, the sectors where tech M&A are taking place have remained consistent, notes the report.
The tech sector has seen new trends in the ongoing health crisis, and these are expected to persist for the longer term. For example, long-term shift to work from home will make acquiring small tech companies a prospect to established businesses that are planning to fit in the post-COVID-19 world. Larger tech companies will also have a more deliberate approach to M&A as pandemic responses are still shifting.
C-suite executives of enterprises that would typically be strategic buyers are instead focusing to redirect the energy and attention of their teams toward the current health of their companies instead of pursuing growth via acquisition strategies. Organizations that want to be more appealing as a vendor or a potential M&A option need to adopt a structured value creation methodology to identify the drivers of value created or lost amid COVID-19.
Moreover, they should set up their own virtual process to provide transparency and offer buyers comfort in closing the deal. There is a good possibility of a turnaround in the state of M&A towards the end of the year if business operations regain some normalcy after the pandemic is adequately contained.
Although it may not be the best time for startups to sell their business to a major tech company, the remaining of 2020 can see tech firms feeling optimistic about their revenue outlooks. Strong venture capital funding coupled with active capital markets can bring a positive change for M&A activities.