Digital transformation drives tech M&A despite global headwinds, says ICON Corporate Finance

The digital transformation market – forecast to be worth $1.25 trillion by 2026 – is driving activity across the sector according to ICON Corporate Finance, the tech-focused investment bank. Cloud, collaboration tools, hybrid working, cybersecurity, supply chain management, AI, and crypto tech are all strategic priorities for organisations mid-2022.

While digitalisation dominates, ICON predicts ongoing resilience in the tech M&A market in the second half of 2022 for Cyber, Compliance, HR, Health, Education, Supply Chain Transformation, Cloud Services and Managed Service Providers (MSPs), as businesses migrate to Cloud-based IT infrastructures. Cross-border deals are expected to remain a key driver for M&A activity while sterling remains weak, and well-funded PE pots continue to look for strategic investment opportunities with strong returns.

This comes despite world economies facing the realities of war in Europe, continuous global supply chain disruptions, spiralling consumer, and energy price inflation, fears of recession and consequently political instability, and is a view supported by the fact that 87% of organisations are already pursuing their own Digital Transformation strategies.

In a note to clients, ICON explained the reasons for its optimism, and why the landscape for digital transformation will continue its upward trend.

The key drivers, in its view are:

• Innovative businesses are coming together to build resilience and create market opportunities – advising on the acquisition of ForePaaS by OVHcloud, we saw a classic example of the voracious acquisition appetite that still exists in the AI and Data Tech space; one that will create a new European leader in Cloud computing.
• AI based text data analytics platforms will deliver high-value insights for global businesses – acting as advisor to AI-based text analytics software platform Relative Insight on its ScaleUp funding, we saw how powerful the market for text data – surveys, reviews, social media, customer experience (CX) and voice of the customer (VoC) – is, and how crucial consumer insights driven from this data has become as the digital marketing sector continues to grow relentlessly.
• Silicon Valley’s expertise and strategy are being applied to companies beyond the tech mecca. This is supported by the view of Heine Krog Iversen, CEO of TimeXtender, the global software company, that enables data integration, advanced analytics, and AI, who commented on the market, saying: “Organisations are starving for faster, better, more efficient ways to manage and utilise their data”.

An ICON AI & Data tech client, TimeXtender, took growth equity from Nordic growth investor Monterro to continue scaling their innovative platform and business model.

• The US announced five recent mega-cap deals – as a bell weather of market confidence, what goes on in the US matters, so it’s good to read that Oracle, Microsoft, Broadcom, and Vista all announced major billion-dollar acquisitions, alongside Elon Musk’s teetering bid for Twitter. More insight on these and other significant deals can be found in our recent M&A report.

ICON CEO and Founder, Alan Bristow says: “What appears clear, is that despite a degree of turmoil and corrections, tech-M&A remains resilient, as central banks try to tame inflation and governments plan to address cost-of-living and economic challenges.

“We’re confident that although markets are subject to high volatility, the remainder of 2022 will see deal volumes continue to remain robust, albeit with more realistic valuations than we saw in last year’s frothier times. After the mega shifts of the pandemic, Digital Transformation has proven it is the driver of businesses of the future – robust, flexible, and versatile – and we predict it will continue to lead M&A through this year of economic headwinds and geo-political instability.”

In its UK Tech M&A report, published in July, ICON reported that deal volumes in the first half of 2022 were strong, even better than in 2019. It cited the glut of PE cash, and valuations for H1 that were relatively punchy – helped by the weakness of sterling – have continued to drive cross-border deals, accounting for 42% of all deals completed in the period.

Recent ICON deals which evidence buoyancy in the tech sector include advising on the acquisition of Forepass by OVHCloud, the European leader in cloud computing; securing growth funding for global software company TimeXtender from growth equity investor Monterro; and acting as exclusive financial adviser to Cloud Direct on its strategic investment from Crayon Group.