Gartner: Tech mergers and acquisitions will hit record high next year

Consolidation in the technology business is expected to hit new highs in 2022, according to a report by Gartner Inc.

The analyst firm said economic uncertainty resulting from the COVID-19 pandemic is driving this consolidation, forcing companies to make some “tough decisions” about whether to merge or acquire other organizations.

According to the report, M&A activity in the tech industry has increased rapidly over the past year, and by the end of 2022 the total transaction volume of such transactions will surpass an earlier record high of 2018.

“Deal market conditions will continue to improve as volatility from COVID-19 subsides,” said Max Azaham, Gartner senior research director. “Tech CEOs pursuing acquisitions should expect increased competition for goals and should take steps to gain advantages over other acquirers and gain acceptance from the seller.”

When the pandemic first hit, M&A activity in the tech space declined sharply, hitting its lowest level in two years in the second quarter of 2020. Activity recovered quickly, however, and rose to levels not seen since 2018 in the fourth quarter as organizations stepped up their businesses by acquiring communications, services and software providers.

More than half of all technology acquisitions last year were in financial services companies, particularly private equity firms, Gartner said.

Acquisitions of communications service providers rose by 93% in the second half of 2020. This is probably not a surprise given that over the past year communication has become crucial with more people working remotely than in person. Service provider acquisitions rose 30% in the fourth quarter of last year. Software acquisitions now made up more than half of all acquisitions in 2020.

Gartner added that consolidation between organizations with a high degree of overlap also increased noticeably in the second half of 2020, by 65% ​​in the services market and 40% in the software market. This trend suggests that business leaders need to be prepared for a competitive landscape in which major competitors will band together, especially in the service provider market.

“Rather than making acquisitions or being acquired, tech CEOs will consider partnerships and ecosystems to level the playing field for larger companies that arise from consolidation in their markets,” said Azaham.

According to Gartner, acquiring companies must carefully weigh the impact of the merger on end users and ensure that the customer experience is a high priority throughout the acquisition process. Customers expect minimal service disruptions and transparent communication about products, price and support changes if they occur. If they don’t, these customers may be able to relocate their business.

“Without empathy and a deep understanding of what motivates their existing customer base, companies risk acquiring a customer base that will change after the deal is closed,” said Azaham.

Image: Gartner

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