There was a significant drop in global deal activity across various sectors during Q1 2023, reaching USD 580 Bn compared to over USD 1 Tn during the same quarter in 2022. The Technology sector Mergers & Acquisitions also experienced a steep decline, with USD 92 Bn compared to over USD 259 Bn in Q1 2022, despite having the highest number of deals in terms of value and volume. Q1 2023 saw Digital Engineering, Product Engineering, Cloud, and Data Analytics as the primary themes for M&A. However, factors such as rising inflation, continuous interest rate hikes, a lack of liquidity, turmoil in the banking sector, and geopolitical concerns, particularly affecting Eastern Europe and other neighboring countries that are important technology centers, have influenced this decline.
Mega deals worth more than USD 1 Bn were especially affected, leading to a greater decline in deal values than deal volumes. Due to a lack of liquidity and overall global uncertainties, the absence of mega deals is expected to continue for the next two quarters. However, high-quality assets that are in the growth stage and have a low-burn model are still in demand.
Additionally, there is a widening gap in buyer/seller valuations, with some sellers unwilling to relinquish the supernormal premiums offered last year, and acquirers factoring in higher levels of risk to achieve long-term averages for return multiples. Buyers are now more selective and cautious in their investments, seeking profitability along with growth. PEs and VCs remain aggressive, but their capacity is limited, and the demand is only for quality assets. However, some buyers may still pursue external growth opportunities aggressively.
In this quarterly update, Zinnov’s M&A Advisory team explores key data points and M&A trends across the Technology & Services space, shedding light on –