Technology

The overall global outlook for the Information Technology (IT) industry is highly optimistic. The IT industry acts as a catalyst for drastic change across all industries and divisions, especially in contemporary society’s rapidly changing markets and unpredictable landscape. No matter the size of an enterprise, technology has both tangible and intangible benefits that may enhance value and produce results to meet consistently increasing consumer demand. The United States has emerged as one of the most technologically sophisticated nations in the world with the continuous offering of essential figures, data, and innovations in the industry.

Companies must control, adapt, and optimize investments in real-time according to the most current market conditions and forms of market data. Precise IT systems provide companies with a competitive edge, which has enabled them to enter larger markets and expand products and service lines more efficiently. Mergers and Acquisitions (M&A) activity assists in maximizing a company’s growth through the enhancement of its production and marketing capabilities. M & A activity consolidates resources in an array of fields including the IT sector, which improves efficiency and expands its customer base. Exhibit 1 shows the performance of the IT sector since 2016 relative to the overall economy, comparing sector revenue change to GDP growth from 2016-4Q2020.

IT sector revenue totaled $1.3 trillion in 2018with an average of$868 billion from 2013-2018. The industry is expected to grow at an annualized rate of 4.5%-5.6% from 2020-2025. The Industry is expected to experience rapid development due to the immense capacity of a tech savvy work force and growing usage of technology within organizations. M&A activity remains a vital source of value-added growth for the IT sector due to the thriving result of new work practices and consumer habits ushered in by the COVID-19 crisis. Experts expect the trends of flexible working and contactless delivery to continue throughout the projection period, and therefore generate continued M&A activity within this sector. As a result, the M&A and general investing activity are also expected to rise through the five years leading to 2025. Exhibit 2 shows the trends in investing activity from 2016-2020.

Industry leaders Alphabet, Amazon, Apple, Facebook and Microsoft have announced nineteen closed transactions through the first quarter of the year – the fastest pace of acquisitions since 2015. Increased demand in the IT industry may be attributed to the latest pandemic and transition to e-commerce platforms, cyber security, smart supply chain solutions, and endpoint delivery. Given the economic impact of COVID-19, business strength will prove to be a driver of M&A activity. Experts note that 39% of technology executives believe that a target’s business resilience will continue to be a key factor for future M&A strategies. The types of investments that are likely to galvanize the interests of management teams and investors alike are those in IT, which present investors with the opportunity to participate in the growth of well-established companies that offer income in the form of dividends.

As of the end of 3Q2019, IT M&A deals worth a total of $245 billion had been announced globally, which include Salesforce & Slack, Facebook & Kustomer, Adobe & Workfront, Marvell Technology & Inphi, and AMD & Xilinx. Salesforce acquired Slack for $28 billion as part of their strategic push towards digital transformation, which brings together two of the largest software-as-a-service (SaaS) giants. Similarly, Facebook’s acquisition of Kustomer for $1 billion was part of a push to build an omnichannel customer relationship management (CRM) platform to specifically focus on the contact center. Adobe’s acquisition of Workfront for $1.5 billion was a push to add a collaboration tool to its marketing software. Marvell Technology’s acquisition of Inphi for $10 billion was aimed towards broadening Marvell’s footprint in data centers and 5G network infrastructure. AMD added a promising technology supplier of programmable logic devices with the acquisition of Xilinx. In sum, the overall outlook for M&A in the Technology sector appears extremely positive due to the innovation and invention of integration within sectors including health, financial, real estate and manufacturing.

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