Union Square Advisors, a technology-focused investment bank, is expecting to see an increase in technology sector deal-making in 2024, with recent positive momentum continuing over the course of the year.
This is according to the company’s 2024 outlook report (titled “The Logjam Begins to Break”), which highlights that, despite factors such as the banking crisis, high inflation, rising interest rates, elevated commodity prices, and geopolitical issues significantly affecting deal activity in 2023, in the second half of the year, there was a meaningful increase in the number of technology companies making the decision to raise capital or pursue a strategic transaction.
The report also notes that there is significant capital on the sidelines today that is available to be deployed.
According to the report, tech M&A activity with strategics and private equity will continue to improve as strategic buyers who are seeing a rebound in their stock prices pursue transactions with the expectation of further market recovery, while also continuing to divest underperforming and non-core assets.
Venture capital and private equity firms meanwhile, will increasingly elect to move their portfolio companies to exits due to funding needs, pressure to return capital and improving business fundamentals.
Despite this positive movement, many transactions will still be challenging to complete, according to the report, given new norms for extensive diligence and a more expensive financing environment. While generative AI went mainstream in 2023, a slowdown in deal activity suggests the initial investor frenzy for the space may be tempering.
Union Square predicts that tech equity markets will see limited IPOs while private markets will be more active, as private equity firms seek creative ways to return dollars to LPs and bolster their ability to raise new funds. The company believes private equity capital remains the crucial financing source and the best liquidity option for companies across the tech sector.
The report also forecasts a strong outlook for M&A with market conditions ripe for the next wave of digital health consolidation, highlighting life sciences opportunities and pharma IT as trends to watch out for within this sphere.
Governance, Risk and Compliance (GRC) technology providers, meanwhile, are said to be evolving to focus on multifaceted solutions that underpin the strategic resilience of modern organisations. Sectors increasingly intertwined with GRC include ESG and comprehensive supply chain solutions, with the latter in particular attracting meaningful investment in the wake of significant pandemic-driven supply chain challenges.
Lastly, the report names sub-sectors like customer engagement and industrial and construction applications that are becoming increasingly digitalised to enhance near-term performance and build long-term resilience, with the expectation for increased deal flow to come.
