Tech M&A Outlook: What Types of Deals are Getting Done?

07 December 2022 Foley Ignite Blog
Author(s): Louis Lehot Brandee L. Diamond Eric Chow

Despite the past year's economic downturn, M&A transactions in the tech sector are still getting done. It might be at a different level than 2021, but deals are happening, particularly in certain sections of the tech industry.

Woodside Capital Partners recently analyzed what types of deals in the tech sector are moving forward, looking at transactions from August through the end of October.

They found that the active tech M&A verticals during this period were:

  • Industrial Tech & IoT (41 deals closed, $14B transaction value)
  • Artificial intelligence (39 deals, $14B transaction value)
  • Cybersecurity (13 deals closed, $16B transaction value)
  • Clean Tech (16 deals closed, $6B transaction value)
  • Ecommerce (16 deals closed; $1B transaction value)
  • HR Tech (8 deals closed; $500M transaction value)
  • Ad Tech (10 deals; $1B transaction value)

Their analysis also showed that the most active category of sellers had been VC-backed companies, with 146 transactions during the August-October window and $18B of aggregate transaction value. As we have previously discussed, this could be an area where we see an increase in the new year as valuations remain low. Startups are pivoting as they continue to face challenges due to the global economy.

Some other highlights from their analysis were the 56 transactions involving private equity-backed companies, with an aggregate deal value of $22B. They also point out that buyers are getting very strategic when looking at targets, looking for those companies who can fill in gaps for them, have healthy balance sheets, and shop for "bargains."

They also found that many large companies are taking a "defensive" approach to M&A to divest non-core assets. During the Aug-Oct timeframe, eight divestitures were closed with an aggregate value of $2B.

One of the most important takeaways from this analysis is that buyers are getting increasingly strategic. They are looking for emerging growth companies that are operating highly efficiently during this time and have incredible potential when we come out of this downturn. That day is coming, and smart founders will be preparing and planning now to be well positioned to take advantage of the M&A boom many are predicting to come in 2023.

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