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Directing Disruption: AI and Cybersecurity Underline Tech Sector’s Flair for Self-renewal

The burden of high interest rates, challenging financing conditions, and disquiet in the banking sector contributed to a marked decline in technology M&A at the start of this year. Compared to the first half of 2022, H1 2023 saw M&A in the technology, media, and telecoms (TMT) arena drop by around a third in terms of volume and by almost two-thirds in terms of value year on year. And yet, for this innovation-rich sector, there are signs of buoyancy.

Global tech markets recaptured investors’ focus following the strong H1 performance of key stocks. The Nasdaq Composite Index rose by 32.1% through the first six months of 2023, marking the index’s best start to a year in three decades. Looking ahead, dealmakers seem to believe this improvement may presage stronger M&A performance; around half of the respondents to this survey believe tech M&A deal volumes and average deal values will rise over the next 12 months.

Regarding the key subsectors for expected tech M&A activity, survey respondents believe the cybersecurity space will offer the best opportunities for dealmaking over the next 12 months. This trend has grown in significance since early 2020, when the COVID-19 pandemic led to a boom in remote working and a subsequent increase in cyber-attacks on individuals’ less secure at-home set-ups.

However, no tech subsector has garnered more popular interest in the public sphere lately than artificial intelligence (AI), especially advances in generative AI. This was forecast in the 2022 edition of this report, when the largest share of respondents said the AI/machine learning subsector would present the best opportunities for dealmaking over the subsequent 12 months.

Consumer and investor excitement has gathered pace as AI applications begin to recalibrate existing business models and spur the creation of entirely new ones. This is not to say the market is ready to ride the AI wave to a new zenith of tech M&A; innovation in the field will inevitably precipitate a bout of regulatory pressures. Rising antitrust scrutiny and issues relating to national security also continue to weigh especially heavily on the sector.

To gain a deeper understanding of these key trends and challenges, we surveyed 300 tech dealmakers from around the globe to gain their insights into what precisely is driving M&A strategies in the near and medium term. As we’ve discussed in previous editions of this study, now in its third year, disruption is the norm for this industry; businesses understand they cannot risk falling behind the competition.

As H2 unfolds and dealmakers look to 2024, tech M&A activity may be poised for an upswing. A “soft landing” for the world economy seems more likely now than at the start of 2023, and interest rate cuts could be introduced early next year. Long-term secular trends, propelled by digital transformation and improving data analytics processes, will also continue to generate interest in tech M&A, touching all industries. Between these key M&A drivers, the end of 2023 may yet see a turnaround in global tech dealmaking.

The report is also available to download at mofo.com.