Fierce Pace of Tech Disruption Force Companies to Innovate via M&A

Fierce Pace of Tech Disruption Has Forced Companies to Innovate via M&As

Sudipto Ghosh

March 5, 2018

In the Latest Report Focusing on Tech Disruptions, Hampleton Partners Highlights Increased Private Equity Activity Against a Cyclical Downward Trend in Deal Volumes and Value

The fierce pace of technology disruption is forcing companies to resort to M&As to innovate, to avoid being left behind. In their latest report, Hampleton Partners’ Tech M&A Outlook 2020, the international mergers and acquisitions advisor, outlined how traditional companies remain under pressure to quickly and effectively integrate new technologies such as Blockchain, Artificial Intelligence (AI), Machine Learning, IoT, Big Data, and the cloud into their product and service offerings to avoid being rendered obsolete by new market entrants that are causing profound shifts in value chains and customer behaviours.

This is resulting in rising strategic deal valuations for disruptive, young and scalable tech companies, with increasing activity from private equity and their portfolio companies compared to strategic investors. This, despite an overall cyclical downward trend in transaction volume and total disclosed value from 4.043 and $506 billion in 2016 to 3.441 and $325 billion in 2017.

Continued Tech Disruptions Forces Established Vendors and New Market Entrants to Innovate and Stay Competitive

Miro Parizek, Founder and Principal Partner, Hampleton Partners, said, “Despite the slowdown in the second half of last year, the overall outlook in the foreseeable future is very positive as continued technological disruption forces established vendors and new market entrants to innovate and stay competitive via tech M&A.”

Miro added, “We are in the midst of a longer lasting upcycle and expect a rebound in deal volumes this year. The technological and resulting behavioural and social change is forcing established companies in industries such as financial services, automotive, healthcare and high-tech industrials to acquire and integrate companies at the leading-edge of artificial intelligence, blockchain, cybersecurity and many other technologies to ensure they can stay relevant and launch new products and services into the marketplace quickly. The alternative is simply to be left behind.”

Private equity firms – with more cash at their disposal than ever before – and their portfolio companies, completed a total of 882 deals, more than a quarter (26 percent of all tech 2017 M&A deal transactions. And such firms are becoming increasingly present in mega-deals, such as the acquisition of Scandinavia’s largest payments processor, Nets A/S, for $5.3 billion by a consortium led by U.S. buyout firm Hellman & Friedman LLC at a 30 percent share premium and 24x earnings.

Eight Sectors Seeing Rapid Pace of Tech Disruptions

In their current edition, Hampleton Partners’ Tech M&A Outlook 2020 Market Report offers an outlook on eight sectors- automotive technology; digital marketing; e-commerce; enterprise software; fintech; healthtech; high-tech industrials and Industry 4.0 and IT services.