Trends and Developments

The Resilience of M&A Activity

The last 12 months have seen tech valuations and global deal activity significantly down on 2021 levels. However, this might simply indicate a return to pre-pandemic levels after the record-setting pace of 2021 driven by exceptional conditions.

This reduction seems largely due to high inflation, hikes in interest rates, fears of recession and overall global economic uncertainty. Current macroeconomic factors and trends have impacted deals across sectors in different ways, though with the technology, media and telecommunications (TMT) sector remaining at the top in terms of M&A investment. This is consistent with our own experience at Preiskel & Co LLP. We are still seeing strong levels of activity in M&A related to the TMT sector, where our work covers both national and international transactions, often with no direct connection with the United Kingdom. 

This article sets out the causes and features of the current M&A activity in the market, drawing from the authors' work, as well as news sources. As a conclusion, it also warns of one possible implication.

Explaining the Current M&A Market Trends

The pace of the M&A market does not have just one cause. There have instead been five factors coming together to increase the transactional activity in the tech M&A sector.


Buyout firms have built-up record levels of cash (private equity firms are reputed to have nearly USD2 trillion in dry powder and there is a similar amount of cash on the balance sheets of the S&P 500 according to Reuters), which needs to be deployed. This leads to continued strong demand from private equity throughout the tech ecosystem. Equally, venture capital continues to flow across the different tech sectors such as remote meeting and collaboration software, cloud, fintech, telehealth, med and biotech, digital payment solutions, edtech, climate tech, and cybersecurity.

Demand is also fuelled by companies searching for growth (or arguably looking to defend market share by acquiring potential competitors).

There is also a strong demand for cloud and digital media, especially given increasing amounts of digital content and the changes brought about by the pandemic to consumption patterns and to accommodate remote working. Media brands are similarly teaming up to combine their assets and strengthen their position to adapt to these trends. M&A activity in the cloud space continues to accelerate, and GlobalData expects to witness more deal activity on this theme over the rest of 2022.


Matched with the demand, there is a continuous stream of tech companies being established and developed across the globe looking for growth financing and/or an exit.


It is clear that the winner-takes-all approach seen in certain markets encourages larger rather than smaller acquisitions. Companies also seem to be using M&A both in strategic offensive and defensive manners, in the latter case so as to protect from their own acquisition or potentially successful attacks on their market share.

Business need

The pandemic proved the need for new technology and solutions in many areas of activity, such as businesses having to shift to remote work and online communications, educational institutions exploring remote learning, and pharmaceuticals looking to accelerate the development of new medicines.

Regulations and increased scrutiny

There is an increasing trend of governments and regulators taking a more interventionist approach to M&A activity. There appear to be two broad trends spurring this:

  • an increasing focus on national security coupled with a concern regarding becoming dependant on technology from certain countries that is leading to an interventionist industrial strategy; and
  • an increasing desire or need to tackle the dominance of Big Tech.

In the UK, for example, there is the relatively recent National Security and Investment Act that requires a notification to be made and clearance to be obtained from the government before completion of certain deals, giving the government the power to scrutinise transactions for up to five years after completion. The Committee on Foreign Investment in the United States is also increasingly scrutinising certain transactions that relate to overseas investors, which adds to the work required to complete deals. Although the UK government's intentions were made clear in order to not deter investments, it is still uncertain whether such increased scrutiny and delay will reduce M&A activity in the UK.

What Next? Will the Same M&A Activity Levels Continue Through 2023?

Heading into 2023, it seems that the USA is likely to continue its reign as the key global driver for continued strong M&A activity in the TMT sector.

According to GlobalData's report, the value of M&A deals grew by 23% in Q2 of 2022 compared to Q1 of 2022, while M&A deal volume continued to decline by 11%. A contributing factor for this value growth is the combination of both scale and technology continuing to be vital for almost every major company so incumbents are likely to be buying technology disruptors in their industry.

The impact of the continuing geopolitical conflicts and challenging debt markets are likely to keep the M&A markets at a slower pace than in 2020 and 2021. The pandemic highlighted that technology has become and will continue to be essential in the business world, with companies in nearly every industry being focused on acquiring the latest technology to evolve strategically. Therefore, resilience in TMT M&A activity levels is expected.

M&A in Subsets of the Tech Sector

The TMT sector remained one of the highest performers in terms of M&A investment. This is largely due to the continuous interest in the adoption of new technologies. The sector accounted for a quarter of the deal volume and a third of deal value in the first half of 2022, according to PWC. The technology demand is therefore expected to continue to create M&A opportunities in both software and infrastructure-enabling technologies such as 5G, the metaverse and associated technologies.

The pandemic has nevertheless affected the M&A markets in many ways. Supply chains have, for instance, been under huge pressure over the past couple of years, with logistics services even stepping in to help relieve some of that pressure by addressing efficiencies and costs issues.

GlobalData's Thematic Research team's report revealed that the TMT sector saw a total of 2,717 M&A deals in Q2 of 2022, collectively worth USD299 billion, bringing the TMT sector's deal value up by 15%. This was largely driven by cloud technology and “digital media” (which are firms that develop, produce, and distribute multimedia content on TV, in print and online).

There has been increasing investment in ESG-related projects as sustainability has become a key element of corporate strategy and culture recently. The focus on acquiring environmentally friendly and responsible assets has been brought by positive returns in ESG-related stocks, private equity firms increasing their ESG efforts for portfolio diversification and debt providers awarding better prices for participants in environment-related transactions.

Due to capital allocation being made available for M&A, owing to the need for scale, activity in the pharmaceutical and life sciences sector is also expected to continue throughout 2023.

Diversity and Inclusion in M&A

A study by Bayes Business School (attached to City, University of London) and SS&C Intralinks explains how M&A deals that include gender-diverse boards are perceived more positively by the market. This in turn is likely to lead to a higher share price. It will therefore be increasingly important to continue to consider gender, ethnic and cultural diversity when companies look at acquisitions, especially during the due diligence and integration phases.

Likely Evolution of Deal Structures

The boom in M&A activity in 2020–21 brought about changes to deal structures and deal processes such as:

  • rising deal values;
  • a downturn in the use of locked box mechanism despite the certainty it gives to parties, due to the challenges that financial due diligence poses in economic uncertainty;
  • W&I insurance thriving as a consequence of the record-breaking deal activity which trend is expected to continue over 2022, even in the event of an economic downturn;
  • lower liability caps caused by the popularity of W&I insurance – often where the cap was far less than the consideration;
  • the volatility on the accountancy figures of companies during the pandemic has seen longer limitation periods; and
  • shorter deal timetables to save on deal costs which would also factor in minimising price uncertainty.

Most of these deal trends continued through 2022, though some changes in trends in 2022 include:

  • more conditionality/conditions precedent to completion in deal terms due to the increased regulatory intervention discussed above, for example, the Digital Markets Unit to oversee “big tech” platforms, consequently resulting in longer deal timetables;
  • increased due diligence on ESG matters and more specific compliance warranties relating to them;
  • earn-outs and completion accounts – a return of the locked box once companies' financial reporting becomes more reliable as the uncertainty of the past two years settles down seems likely;
  • structuring deals as a business and asset acquisition in order to fall outside of the mandatory notification regime for the National Security and Investment Act; and
  • increased cost for obtaining W&I insurance in an economic downturn.

Originally Published by Chambers and Partners

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