Will The “Wild Ride” In Tech Dealmaking Continue Into 2023?
The technology, media, and telecommunications (TMT) sector has remained the dominant dealmaker for 2022. While not surpassing last year’s performance, the accelerating demand for cloud-based services, IT security, and enterprise software has kept these deals at the forefront of global M&As. Tero Nummenpää, Managing Partner at Translink Corporate Finance in Finland, concurs that overall, there have certainly been fewer deals within this sector compared to 2021. One reason may be that some private and public software companies may be waiting out low prices until current below-market valuations recover, as reported in Tech Crunch in early October. Nummenpää says that lower investor appetite after great demand for tech stocks for several years pre-Covid is also a reality. As a world leader in specialised mid-market corporate financial advisory services, Translink Corporate Finance saw a strong start to the year with deal volumes across all industries seeing record year levels in the first six months. The latter part of 2022 has seen some hesitation in activity across many sectors, including TMT. Although performance is down, the fact that deals continue to take place is notable, especially given the geopolitical instability, rising inflation and other global uncertainties that have escalated this year.
Recent prominent deals where Translink acted as an exclusive advisor to the seller or the buyer include:
- Global education materials publisher, Klett Group bought Finnish growth company, Studeo (Read more here).
- Visma, one of Europe’s leading providers of mission critical software, bought Paris-based Inqom (Read more here).
- Fast growing and international web hosting company Miss Group completed over 15 acquisitions, including the purchase of one of Switzerland’s leading web hosting providers, Webland (Read more here).
- Hardware-enabled SaaS company, Smartvatten purchased a majority stake in Norvestor (Read more here).
- World leader in consulting and engineering technology, the Alten Group purchased. Clevertask, a technology consultancy specialising in digital transformation (Read more here).
- Translink also advised Nordic ID in the first ever Nasdaq First North cash offer in Finland. This saw the US Brady Corporation acquire the Finnish company through a voluntary public tender offer.
- The acquisition of Professional Software by Grupo Primavera.
While Translink focuses on mid-market acquisitions, it is interesting to note that the two biggest blockbuster TMT deals over the last year were Microsoft’s US$75.1 billion bid for Activision Blizzard and Broadcom’s US$71.6 billion bid for VMware. Putting this into perspective, these two deals together accounted for 36% of total deal value within the sector, adding to what has been termed the wild ride in tech dealmaking, with deal volumes down while deal values increased.
In terms of valuation levels, we have seen tech companies’ valuations decrease significantly over the last year. There are two reasons for this, namely higher interest rates and lower growth prospects.
Digital transformation drives the growth of both service and product companies in the tech space. Keeping up with what is latest and new is difficult for many larger companies, which is why they rely heavily on buying start-ups to stay relevant and access the latest tech products and service models.
As an example, during the height of Covid-19, some SaaS companies were priced at up to twenty times revenue, due to their unprecedented growth rate during the pandemic. Now demand has decreased and the revenue is not growing, so too have the valuations decreased within this sector.
“Lower valuations will slow dealmaking in late 2022 and probably early 2023, but many growing and profitable companies will still succeed in their M&A plans over this time,” Nummenpää says.
On a positive note, looking forward to 2023, businesses will continue to innovate in an increasingly competitive market. There are many deals currently being closed with a high degree of certainty and many new projects being initiated, specifically in the cloud services and SaaS area, a good foundation to start the new year.
According to Nummenpää, deal volumes in the TMT sector will remain strong. Smaller companies considering further funding or selling need to focus on steering the company towards profitability. Public buyers should also watch for competition from private equity, with many on the look out for good deals within the TMT space. Translink’s global TMT group consists of 25 team experts across the world with deep knowledge and sector experience, which help to execute global tech deals.
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