The pervasiveness of technology, particularly since the pandemic, continues to drive deals to all-time highs

The technology sector continued its record-breaking path through 2021 as digitalization picked up pace. M&A value in 2020 was already strong—it reached US$339 billion, the highest-ever annual value for the sector at that point. However, 2021 blew that total out of the water, more than doubling to US$790 billion. Volumes also hit an all-time high, with 2,194 transactions in 2021, a 69 percent rise on 2020.

Technology assets have been highly prized for some time, although the pandemic has only added to their allure, as businesses accelerated their adoption of digital tools. This is evident in the largest deal of the year—Dell’s spin-off of VMware. The business is focused on digital solutions, including digital workspaces, cloud, networking and app modernization. The persistent trend toward digitization means that investors will continue to focus on cybersecurity, networks and data storage in the coming years.

Green energy provides a boost

The Biden administration’s US$1 trillion infrastructure bill is also helping to boost totals, given its emphasis on energy transition and the development of clean energy technology, including US$7 billion for investment in batteries and US$1.5 billion to develop clean hydrogen. A recent partnership between Amazon and TotalEnergies shows the direction of travel—the collaboration will apparently see TotalEnergies provide 474MWs of renewable energy to Amazon, while the energy company will be able to accelerate its move to the cloud through Amazon’s Web Services.

Energy transition will continue to be a theme for technology M&A for some years to come. We anticipate the move to electric vehicles, for example, to boost activity in battery storage technology and vehicle software.

The second-largest deal of 2021 illustrates another big trend in technology: de-SPAC mergers. Lionheart Acquisition Corporation, a SPAC, acquired medical claims reclamation business MSP Recovery, which has developed a proprietary algorithm to find suitable litigation cases, in a US$44.3 billion transaction. The technology sector has been a fertile hunting ground for SPACs, whose numbers swelled significantly in early 2021. These vehicles are now on the hunt for businesses to merge with—and early-stage pre-revenue technology companies are strong candidates for these deals.

Potential challenges: Valuations, antitrust and FDI

Given demand for tech assets, it’s no surprise that valuations have soared—and there is little reason to believe multiples will fall off in the foreseeable future.

Under the leadership of Lina Khan, the Federal Trade Commission has signaled it will take a tougher stance on antitrust in the US, especially on technology deals. As a result, we are increasingly seeing dealmakers make antitrust filings before signing merger agreements and, in some cases, even before announcing a deal.

CFIUS is also increasingly scrutinizing technology deals involving overseas investors and has demonstrated that it is prepared to examine even non-notified transactions. While neither of these is likely to significantly stem the tide of technology M&A for the foreseeable future, they are adding to the preparation work needed to get deals over the line.

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