The tech M&A market has gone into lockdown. Spending on tech deals in April plummeted to one-tenth the typical monthly level, as the health and financial risks brought on by the coronavirus pandemic devasted dealmaking. This month's dire spending total is the lowest since the previous recession bottomed out in February 2009.
According to 451 Research's M&A KnowledgeBase, buyers around the world announced tech and telecom acquisitions worth just $4bn in April, compared with an average monthly spending in 2019 of nearly $40bn. There are a couple of ways to look at how broadly and sharply M&A activity plunged:
- Our data shows that there were 24 individual transactions in 2019 that exceeded the total amount that acquirers spent on all tech deals for the entire month of April.
- On an annualized basis, April's spending would produce $48bn of full-year spending, which basically equals slightly more than a single month worth of transactions in a normal period, according to the M&A KnowledgeBase.
The historic 90% decline in announced deal value in April puts investment banking among the hardest-hit industries by the coronavirus outbreak. For comparison, airlines have indicated a similar drop-off in activity recently. Nor is business expected to pick up immediately, despite talk of a 'V' recovery for the broader economy. Boeing forecast this week that it would take two to three years for air travel to reclaim pre-coronavirus levels of 2019.
Similarly, it appears likely that tech M&A will also suffer through a protracted downturn. That was certainly the case during the Credit Crisis, when the M&A KnowledgeBase indicates that it took until 2013 for acquisition spending to match 2008's level. (For more on the current market, plus the outlook for recovery, see our full report on M&A in Q1.)
The major reason for the lag is that M&A pipelines, which are indicators of future business, have taken huge hits because of the uncertainty brought on by the current pandemic. Fully nine of 10 senior tech investment bankers told us they have less in the works right now than they did before COVID-19 upended business – and, indeed, life – in February.
In 451 Research's special Flash Survey: Technology Investment Banking Outlook, half of the respondents said coronavirus has derailed at least one of every four deals they were working on before the outbreak. But highlighting the depth of the current crash, among this bearish group, one in four bankers (24%) said at least half of the deals they were working on in February are no longer moving ahead, either temporarily or permanently.
That bearish sentiment adds new difficulties for the already bleak tech M&A market. Not only did spending on tech transactions plummet an unprecedented 90% in April, but there's not a lot of deals coming after those already announced ones. The tech M&A market is in lockdown and doesn't appear likely to be unlocked anytime soon.
Brenon Daly oversees the financial analysis of 451 Research's Market Insight and KnowledgeBase products, having covered more than a quarter-trillion dollars' worth of deal flow for both national publications and research firms.
Sheryl Kingstone leads 451 Research’s coverage for Customer Experience & Commerce, which covers the many aspects of how customer experience is a catalyst for digital transformation. She oversees the company’s coverage of a variety of customer experience software markets spanning ad tech, marketing, sales, commerce and service.
Keith Dawson is a principal analyst in 451 Research's Customer Experience & Commerce practice, primarily covering marketing technology. Keith has been covering the intersection of communications and enterprise software for 25 years, mainly looking at how to influence and optimize the customer experience.