17 Aug 2022

As dusk settled on 2021’s post-pandemic optimism Forbes magazine made its predictions for the Digital Transformation M&A landscape in the year to come – post-pandemic working, Smart Cars, AI, Big Tech in the regulatory spotlight, and hybrid/multi-cloud IT infrastructure were key themes to top the deal rankings.

Eight months later, with world economies facing the realities of war in Europe, continuous global supply chain disruptions, spiralling consumer and energy price inflation, fears of recession and consequently political instability, how have predictions stacked up so far?

The Digital Transformation market is forecast to be worth $1.25 trillion by 2026. Last month Bloomberg reported that 87% of organisations are already pursuing their own Digital Transformation strategies – Cloud, collaboration tools, hybrid working, cybersecurity, supply chain management, AI and crypto are all in the mix. But how does this strong momentum translate into M&A activity in the broader economic context?

In ICON’s latest UK Tech M&A report*, we noted that deal volumes in the first half of 2022 were strong – better in fact than in 2019. We also highlighted that there is a current glut of PE cash, and that valuations for H1 were still relatively punchy, notably helped by the weakness of sterling, which has continued to drive cross-border deals, accounting for 42% of all deals completed in the period.

While digitalisation is undeniably driving activity across the board, we also see a buoyant tech M&A market for Cyber, Compliance, HR, Health, Education, Supply Chain Transformation as well as Cloud Services and Managed Service Providers (MSPs) - as businesses continue to migrate to a modern Cloud-based IT infrastructure.

Looking to the year ahead, we remain confident that the landscape for digital transformation will continue its upward trend. Here’s why:

• Silicon Valley’s expertise and strategy are being applied to companies beyond the tech mecca. "Organisations are starving for faster, better, more efficient ways to manage and utilise their data”, says Heine Krog Iversen, CEO of TimeXtender, the global software company, that enables data integration, advanced analytics, and AI. TimeXtender, an ICON AI & Data tech client, took growth equity from Nordic growth investor Monterro to continue scaling their innovative platform and business model.
• Innovative businesses are coming together to build resilience and create market opportunities – advising on the acquisition of ForePaaS by OVHcloud, we saw a classic example of the voracious acquisition appetite that still exists in the AI and Data Tech space; one that will create a new European leader in Cloud computing.
• AI based text data analytics platforms will deliver high-value insights for global businesses – acting as advisor to AI-based text analytics software platform, Relative Insight, on its ScaleUp funding, we saw how powerful the market for text data - surveys, reviews, social media, customer experience (CX) and voice of the customer (VoC) - is, and how crucial consumer insights driven from this data has become as the digital marketing sector continues to grow relentlessly.
• The US announced five recent mega-cap deals – as a bell weather of market confidence, what goes on in the US matters, so it’s good to read that Oracle, Microsoft, Broadcom, and Vista all announced major billion-dollar acquisitions, alongside Elon Musk’s teetering bid for Twitter. More insight on these and other significant deals can be found in our recent M&A report.
  

What appears clear, is that during some turmoil and corrections, tech-M&A remains resilient, as central banks try to tame inflation and governments plan to address cost-of-living and economic challenges.

At ICON we’re confident that whilst markets are subjected to high volatility, the remainder of 2022 will see deal volumes continue to remain strong, albeit with more realistic valuations than we saw in last year’s frothier times. After the mega shifts of the pandemic, Digital Transformation has proven it is the driver of businesses of the future – robust, flexible, and versatile – and we predict it will continue to lead M&A through this year of economic headwinds and geo-political instability.

*Published July 2022