The demand for technology to fuel a remote workforce in 2020 brought on a surge in technology mergers and acquisitions. According to GlobalData, 2020 ended with a 91.8% year-over-year increase in global tech M&A deals.
To get a behind-the-scenes look at the current state of the tech M&A market, we sat down with Ed Bryant. Ed has over 20 years of experience in M&A, and is the President and CEO of Sampford Advisors, an advisory firm that specializes in technology M&A and has completed hundreds of successful transactions.
Learn Ed’s thoughts on M&A deal drivers, valuations, and what’s to come by reading on below.
As we look back on 2020, what are some themes that emerged in tech M&A, and what can we learn from them?
2020 was an interesting year for sure and highlighted a couple of important themes which I believe will continue for the near-term.
Firstly, with the work-from-home model now becoming prevalent across any industry that can, the reliance on technology and the adoption of technology has been massively accelerated. For example, the acceleration of the adoption of e-commerce from previously “nice to have” to “need to have” and the proliferation of food delivery apps among businesses that had always relied on in-person sales. As a result, some areas of technology have become more valuable as they have seen their businesses thrive.
Secondly, many investor segments that have been under-exposed to technology are witnessing the sector’s outperformance and tailwinds and realizing they need part of the action. As such, we have seen Private Equity funds that have never done a tech deal before coming to us and trying to add tech companies to their portfolios.
Lastly, we have seen a bigger divergence between the haves and have-nots. Those companies that are continuing to grow at strong rates in this environment are commanding premium values. While other businesses that are exposed to depressed end-markets (e.g., travel, hospitality, etc) would really struggle to find a buyer given their declining metrics.
What deal drivers do you see influencing the tech industry this year and what sectors do you see having the greatest growth?
Everyone always comments on this but the biggest driver for me is the amount of money that is out there to do acquisitions. In the mid-market, the biggest driver is definitely Private Equity money that is eager to get deployed. There are now hundreds of mid-market tech PE funds all looking at similar opportunities and a shrinking window to deploy their capital. As a result, this will likely drive very strong levels of activity this year. As for which sectors within tech, it's pretty broad-based and basically everything that doesn’t have exposure to depressed markets like I mentioned earlier.
How have valuations changed since 2020 and what advice do you have for a tech company looking to obtain a valuation this year?
Valuations have continued to firm up and reflect the trend we mentioned earlier differentiating the haves and have-nots. Investors are continuing to pay a premium for scale, growth, and businesses with strong retention metrics. So while overall valuations are up, there is more differentiation in multiples reflecting some of these metrics.
What advice can you provide for both buy-side and sell-side for conducting a deal remotely?
When the pandemic first set in, everyone was saying how it was going to be impossible to close a deal with the US / Canadian border closed. Since then, we have closed approaching 10 cross-border transactions where everything was done over video conference. I think everyone is learning in this environment that while a face-to-face meeting and dinner is nice to solidify a deal, it is not a necessity – especially for cross-border deals. So, the only advice I would give is to be open-minded and be safe in the knowledge that plenty of others are closing deals remotely.
What advice do you have for tech companies considering M&A this year?
If you’re a seller, I advise most folks to go to market as quickly as possible. Market conditions are the best I’ve seen in 25 years. I hope the tailwinds that are in place today continue but when the music does stop, there is usually a 2-3 year pause before valuations and deal activity fully recover. But on the flip side, given how busy the market is, don’t try to force an accelerated timetable because you will lose some likely bidders as so many financial and strategic buyers are looking at more opportunities than they can handle.
Ed Bryant is President and CEO of Sampford Advisors, an M&A advisory firm for US and Canadian mid-market tech companies. Ed has 25 years of experience, including over 21 years in investment banking with Deutsche Bank, Morgan Stanley, and Sampford in Hong Kong, Singapore, New York, and now Canada. In that time, he has raised in excess of $20 billion in equity and debt capital and completed over $10 billion in M&A transactions.