M&A Activity in Tech Declines as Buyers Remain Wary

Recent merger and acquisition (M&A) activity in the technology sector has been on the wane as the risk of overpaying deters acquirors.  Usually, a fall in stock valuations can spark a rash of corporate buyouts, which is supportive of the overall market.  However, that has not been the case with this year’s sell-off in the Nasdaq 100 ($IUXX) (QQQ).

With economic uncertainty rising, many acquirors are looking to end or amend any deals.  Last week, Dow Jones reported that banking-software provider Q2 Holdings said it is currently not looking at a sale after bids for the company came in below expectations.   Also, buyout firm Thoma Bravo said Monday it was cutting the price it’s paying for software company Anaplan.  In addition, Elon Musk threatened to walk away from his $44 billion deal to buy Twitter, which some say is a ploy to negotiate a lower price.

Even though there have been some landmark acquisitions this year, many new deals are being delayed or scuttled.  Microsoft (MSFT) in January agreed to buy Activision Blizzard for $68.7 billion and Broadcom (AVGO) last month said it would buy VMware for $61 billion.  However, this year’s -22% plunge in the tech-heavy Nasdaq 100 makes buyers wary of pulling the trigger on new deals.  Ameriprise Financial said that “while prices and valuations have fallen, the risk of overpaying in a deal is a lot higher than the risk of underpaying, especially if you’re worried about the next few quarters of earnings.”

So far this year, buyers have announced 892 purchases of U.S. technology companies, down from 928 in the same period last year, according to Blomberg data.  The value of the announced deals year to date is $246.3 billion, more than doubled from the same period in 2021, due mostly to the Activision Blizzard and VMware deals.

Another sign of softness in the market is the lack of new initial public offerings (IPOs) priced this year. According to Bloomberg data, just 11 tech, media, and telecom companies have priced IPOs in the U.S. this year, raising $385.4 million in total.  At this point last year, 57 companies had raised $30 billion.  Ameriprise Financial said, “the drop in deal activity is a symptom of a larger problem in tech, which is that no one knows how to price assets in a market this uncertain.”