Private equity could soon see its tech M&A bubble burst, warns report

Bubble (Public Domain)

A flurry of technology mergers and acquisitions (M&A) are set to happen before 2020, a new report predicts.

However private equity firms – which have recently been elbowing trade buyers out of the way to splash the cash on tech targets, such as in the $5.3bn (£3.8bn) buyout of Nets – could soon see their bubble burst.

According to a report from tech-focused deal advisers Hampleton Partners, the availability of cheap debt has allowed private equity to outbid trade buyers. But as interest rates look set to rise, this bubble could burst – possibly causing a price correction.

Read more: A fintech M&A bonanza drove deal value to its highest level last year, as the UK led the way

“Despite the slowdown in the second half of last year, the overall outlook in the foreseeable future is very positive as continued technological disruption forces established vendors and new market entrants to innovate and stay competitive via tech M&A,” said Hampleton founder Miro Parizek.

Though the data showed a dip in tech deal value and volume last year, Parizek believes this is likely to be “a blip” in the scheme of the next year.

“The technological and resulting behavioural and social change is forcing established companies to acquire and integrate companies at the leading-edge of artificial intelligence, blockchain, cybersecurity and many other technologies,” he added.

Read more: Tech giants, Chinese buyers and activist investors are the new drivers of mergers and acquisitions, business heads claim

Globally, Hampleton recorded 3,441 tech deals last year worth a combined $325bn. This compares to 4,043 worth $506bn a year prior.

As far as the UK is concerned, Parizek noted that the country has leading expertise in areas such as artificial intelligence and machine learning.

He added that the Brexit vote appears to have had little lasting effect on deal value or volume – and that in the medium term, it could even be a driver if young businesses are forced to find talent abroad by either selling themselves or buying a peer.

Read more: The UK is a driving force in tech M&A while artificial intelligence is boosting global deal activity

Full story: Private equity could soon see its tech M&A bubble burst, warns report: City A.M.

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