MoFo Survey: Majority of Tech M&A Leaders Split on Whether Deal…

Morrison & Foerster, a leading global law firm, today announced the results of its semi-annual Tech M&A Leaders’ Survey, in which dealmakers delivered a mixed forecast for the future. Forty-three percent of survey respondents expect deal activity to continue to increase, 41% predict activity to stabilize, and only 16% anticipate a decline. This is a departure from the bullish findings seen in April 2018, when the last survey was conducted, which showed 66% of dealmakers expecting an increase in activity.

“The market is still very strong, especially when you take into account that the tech industry is on track to finish near, if not over, the highest deal value we’ve seen since the dotcom crash,” said Eric McCrath, co-chair of Morrison & Foerster’s Corporate Department. “However, the volume of tech M&A activity over recent years has set the bar high, which partially explains why dealmakers are expecting a change in the deal cycle. There is also concern as to how the U.S. government’s policies on CFIUS and trade may impact deals.”

A little more than half (54%) of the dealmakers who participated in the survey believe that CFIUS will be a deterrent to future deals, while the same number expect trade disputes to have a negative impact. When it comes to antitrust, far fewer respondents are seeing it as an issue that could hinder dealmaking, likely as a result of the completion of AT&T’s acquisition of Time Warner in June 2018. Only 34% were still wary, which is a stark decline from the 50% who expressed concerns in April 2018.

Additional key findings, takeaways and analysis from the Tech M&A Leaders’ Survey include:

Buyers Are Hungry for Machine Learning

There’s a strong appetite for machine learning among acquirers in the industry, with nearly two-thirds of respondents viewing the technology as more of a driver of M&A this year. When asked about specific applications that are propelling this activity, a vast majority of dealmakers (80%) cited security as either “very” or “extremely” important. Business analytics follows security as the next most important application that is driving activity, drawing in 62% of responses.

A Rise in IPOs – With Strong Unicorn Debuts – Is Anticipated

While only 12 enterprise tech companies have held a public debut in 2018 to-date, respondents are expecting to see this number rise. On average, respondents predict that 20 tech companies will be listed on NYSE and NASDAQ within the next 12 months.
Additionally, 62% of respondents have faith that unicorns, companies with a valuation north of $1 billion, will be making particularly strong debuts, predicting that the average unicorn IPO will finish its first day of trading above its post-money valuation. In the previous Tech M&A Leaders’ Survey, only 48% of dealmakers made the same prediction.

Industry Outsiders Are Here to Stay

According to 451 Research’s M&A KnowledgeBase, in each of the last three years, strategic acquirers from outside the tech market have spent $40+ billion on tech M&A, the highest amount seen since the dotcom bubble. Respondents see this as a trend that is here to stay, with 68% predicting that the volume of deals involving non-tech companies buying technology businesses will be at an even higher level three years from now.

Outlook on Cross-Border Dealmaking Remains Steady

Predictions concerning cross-border dealmaking remain largely unchanged since the last Tech M&A Leaders’ Survey was conducted. Nearly the same ratio of respondents (42%) expect an increase in cross-border dealmaking and a similar number (35%) anticipate a decrease. In line with 2017, cross-border transactions so far this year have accounted for almost 40% of total tech deal value, according to 451 Research.

ABOUT THE TECH M&A LEADERS’ SURVEY

Now in its 14th edition, the M&A Leaders’ Survey from 451 Research and Morrison & Foerster drew 115 responses, primarily from investment bankers (40%) and C-level or M&A executives (38%), with the remaining responses coming from lawyers, VCs, PE professionals, and others in the M&A community. Roughly 85% of the responses were from dealmakers and advisers based in the United States, with Silicon Valley representing the largest single location.

ABOUT MOFO

We are Morrison & Foerster — a global firm of exceptional credentials. Our clients include some of the largest financial institutions, investment banks, Fortune 100, and technology and life sciences companies. The Financial Times has named the firm to its lists of most innovative law firms in Northern America and Asia every year that it has published its Innovative Lawyers Reports in those regions. In the past few years, Chambers USA has honored MoFo’s Privacy and Data Security, Bankruptcy, and IP teams with Firm of the Year awards, the Corporate/M&A team with a client service award, and the firm as a whole as Global USA Firm of the Year. Our lawyers are committed to achieving innovative and business-minded results for our clients, while preserving the differences that make us stronger. The firm also has a long history of commitment to the community through providing pro bono legal services, including litigating for civil rights and civil liberties, improving public education for poor children, advocating for veterans, promoting international human rights, winning asylum for the persecuted, and safeguarding the environment.

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