Technology M&A activity is thriving in 2021 as dealmakers continue to turn to the sector in search of assets with high-quality earnings and growth prospects

Technology deal volume and value surged through the first half of 2021, with tech value climbing 387 percent year-onyear to US$324.1 billion while deal volumes increased 67 percent to 948 transactions.

The sector has been the clear winner throughout the pandemic. Sustained demand for technology products and services enabled strong growth in the sector, which in turn has encouraged higher valuations and M&A. The Dow Jones US Technology Index has climbed 48.05 percent over the last 12 months and is showing gains of more than 20 percent for the year to date. Tech companies like Amazon have posted record sales.

US $324.1 billion

The value of 948 deals targeting the US tech sector in H1 2021

Valuations in the sector have soared as a result—but dealmakers appear to be reserving high prices for those tech companies of the highest quality.

Antitrust has also come onto the radar for tech deals, with the Biden Administration’s appointment of Lina Khan, a prominent critic of Big Tech, as chair of the Federal Trade Commission. Any potential changes to antitrust will take time to come into effect, however, and are not expected to affect deal appetite in the short to medium term.

387%

Percentage increase in tech deal value compared to H1 2020

Digital health

The largest TMT deal in the US in H1 2021 saw software giant Microsoft pay US$19.3 billion for Nuance Communications, a developer of AI-powered speech recognition technology. The deal is the second largest in Microsoft’s history and deepens a two-year partnership between the two businesses to build AI tools that help doctors with administrative tasks.

In another healthcare/technology cross-over transaction, OptumInsight, the healthcare services group owned by United Health, acquired Change Healthcare in a US$13.3 billion deal. Change Healthcare’s technology integrates evidence-based criteria in clinician workflows and the deal is set to complement Optum’s clinical analytics capabilities. The tie-up is expected to help expedite payments to healthcare providers and to provide patients with tools to manage their personal healthcare budgets.

Software was by far the most active subsector in tech M&A. Software deal value totalled US$248.6 billion in H1 2021, the highest half-year period on Mergermarket record, overtaking the previous record set by the US$158.5 billion achieved in H2 2020.

SPACs to stay active

Technology has also been a key sector for SPACs. There were 59 SPAC mergers in the industry in H1 2021, compared to 31 in all of 2020, according to Dealogic.

The third-largest deal in the sector saw Social Capital Hedosophia V, a NASDAQ-listed SPAC, acquire Social Finance, which does business as SoFi, in a US$12.9 billion transaction. The deal saw PIPE investment from BlackRock and Altimeter Capital, among others.

Although SPAC IPO issuance has slowed in the second quarter from the frenzied heights of Q1, SPACs will continue to play an important role in M&A in coming years as they seek attractive targets to deploy the capital they have raised. Tech start-ups—with their potential for exponential "hockey-stick" growth—are well-suited for SPACs, which often seek early-stage companies that offer higher potential reward alongside higher potential risk.

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