by Brenon Daly
After tech M&A spending dipped in 2019 from its record level in the previous year, senior tech bankers are bracing for acquisition activity to slow further in 2020. Only slightly more than six of ten (62%) of respondents to the 451 Research Tech Banking Outlook say the value of deals they are working is higher now than it was a year ago. Over the past decade of our survey, an average of 68% of bankers have reported fuller pipelines. The 2020 outlook comes as 2019 posted a roughly 20% year-over-year decline in spending on tech and telecom deals around the globe, according to 451 Research‘s M&A KnowledgeBase. (See the full report.)
More ominously, a recent record one-quarter of respondents (24%) to our survey indicated that the value of deals they are currently working is lower now than it was a year ago. That’s the most-bearish outlook since the recession-scarred year of 2009 and is fully 10 percentage points higher than the average response since the start of the decade. Of course, the tech M&A market has expanded dramatically since emerging from the Credit Crisis. The M&A KnowledgeBase shows that overall spending on tech transactions is running more than three times higher in 2019 than it was a decade ago.
The fact that bankers, who tend to be an optimistic group with a bias toward activity, say their pipelines are thin as they head into 2020 is significant. The reason? Their predictions in previous editions of our Tech Banking Outlook have proven uncannily accurate, particularly on the downside. Since 2010, the level of bankers projecting a decline in the dollar value of their mandates for the coming year has only topped 20% in just three of our surveys (2010, 2013 and 2017).
Each of those years has indeed played out that way, with below-average annual spending on tech deals, according to the M&A KnowledgeBase. Now, we add 2020 to that list as the weakest of the weak forecasts.
For more specifics on the outlook from senior bankers – who, collectively, have had a hand in dozens of deals across a wide swath of the tech landscape – see our full report on our 15th annual Tech Banking Outlook. Highlights include:
How active will private equity (PE) be in 2020? Financial acquirers have been a virtually unstoppable force in the tech M&A market in recent years, accounting for nearly one of every three tech transactions, according to our data. That’s triple the market share they held in 2010. And yet, bankers forecast that the growth for PE isn’t necessarily going to continue in the coming year.
What tech sectors will be the busiest this year? Once again, we have a kind of ‘heat map’ for M&A, based on what bankers tell us they are actually working on. (Crucially, their assessment is based on their pipeline and ongoing workflow, rather than a vague, ‘What’s hot in 2020?’-type question.) See how your M&A priorities line up with the broad-market trends.