Dealmaking in the US technology sector flourished in H1, despite a much-publicized fall in stock market valuations

The technology sector continued to be the driving force behind US dealmaking in H1 2022. A total of 1,299 deals valued at US$415.4 billion took place in the US tech sector in H1 2022, maintaining tech's status as the most active sector in terms of both value and volume.

Against a background of overall declining deal activity in the US this year, tech M&A maintained healthy deal activity—tech deal volume dropped slightly by 4 percent, while the aggregate deal value rose by 5 percent.

Thanks in large part to a few outsized deals, activity was especially robust at the top end of the market. Deals worth US$5 billion or more totaled US$282.8 billion in H1, a 58 percent increase year-on-year. In contrast, deals worth less than US$5 billion came to US$132.6 billion in aggregate, a 39 percent decrease from the same period the year before.

Megadeals reach new highs

The value of 1,299 deals targeting the US tech sector in H1 2022

5 % Percentage increase in deal value compared to H1 2021

The highest-valued deal in the technology sector so far this year was Microsoft's US$75.1 billion acquisition of US-based videogame developer Activision Blizzard, announced in January. If approved by regulators, the deal would not only be the largest transaction announced so far this year globally across all sectors, but the biggest technology deal on record in Mergermarket history (since 2006).

Although the Microsoft/Activision transaction is a record-breaker, it is only slightly larger than the second-biggest deal of the year so far, Broadcom's US$71.6 billion purchase of cloud computing firm VMware.

These two deals together accounted for 36 percent of total deal value within the sector—a sign of how outsized they are. Despite an economic downturn, the top end of the market could remain active due to large tech players having strong strategic rationale for continued dealmaking.

Mind the valuation gap

After years of buoyant stock market prices, the technology industry has seen public market valuations take a tumble this year. The S&P North American Technology Sector Index is trading at around 25 percent below the start of the year, causing valuations to decrease. These challenging conditions make it more difficult for dealmakers to both value companies and carry out deals.

As a result, there is also a hesitancy among companies to pull the trigger on deals. Well-planned merger agreements, using earn-outs and other types of deferred compensation, however, can be utilized to ease worries about deals, especially if there is a strong rationale for the transaction.

With the continued growth of online shopping and services, and adoption of digital transformation, activity in the technology sector will undoubtedly remain high relative to other sectors, despite the drop in public market valuations.

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