A rosy view of M&A in tech

“Overall, I think this is a pretty rosy picture,” said Grant Thornton Transaction Advisory Services Principal Bill Pollatos. “Some companies that were bought for a certain price will be struggling to find that valuation on exit. So, I think it’s going to be a bit turbulent for some, but given the dry powder with private equity and the hold periods extending there is a need for businesses to transact.”

“There are some large PE firms making big bets — and that will help those valuations,” Walker said. Many industries anticipate an increase in M&A activity in the next six months, and the M&A professionals in Grant Thornton’s survey predicted that the technology, media, entertainment and communications industry would see the most activity by far. “Will we return to the heyday of ’21?” asked Grant Thornton Transaction Advisory Managing Director Vic Sandhu. “No — but there’s a lot of dry powder that needs to be deployed.”

So, with strategic and transformational moves on the horizon, how should tech companies prepare, and what’s different from transactional cycles in the past?

Focus on profitability

Connect your business plan and transaction plan

Your business plan is the guiding light for many of your leadership decisions, and M&A decisions might be the most important place to use that guidance.

It can be tempting to consider M&A purely to gain valuable skills, market share or brand recognition, but your decision needs to align with your business plan. “You need to have a clearly articulated strategy, so that you can evaluate how a potential transaction advances that.”

M&A can address specific needs or tech capabilities in your plan, so consider where you have such needs. “Consider your AI strategy, and how that factors in,” Walker said. He added that many companies also use M&A to address cybersecurity needs.

Cybersecurity can be a critical, but underdeveloped, part of a tech company’s product offerings. Software companies often need to shift from developing new capabilities to securing those new capabilities. “It’s like the shield and the sword, where cyber is the shield,” Sandhu said. New capabilities can come with risks, especially if they involve new integrations or technology partners, as AI technology often does.

As companies look at how M&A can advance — and protect — their future business, they need to get ready for the next stage of competition.

Get ready for the next stage

Whether you’re evaluating your own company or a potential acquisition, you need to consider the next stage of competition in the tech market. “M&A could be especially active for SaaS platforms that have an AI component,” Pollatos said.

However, Pollatos said, AI alone isn’t enough to differentiate any product in the crowded tech market. “AI is table stakes at this point,” Sandhu agreed. “If a company doesn’t already have a strategy addressing AI, then it might not be worth investment. The next level is: How do we service companies better?”