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The tech M&A market just topped $1 trillion as SPACS, PE spend big

Tech M&A in 2021 has already smashed through the $1 trillion threshold, according to S&P Global Market Intelligence’s 451 Research — the first time the dollar value of deals has hit 13 digits.

“With a full quarter of 2021 still remaining, spending is already more than 50% higher than any other full-year total in our M&A KnowledgeBase,” said 451 Research’s Brenon Daly, saying buyers were taking advantage of “once-in-a-generation momentum” to make record levels of deals in the tech sector.

(Among this week’s tech M&A deals was Akamai’s $600 million buyout of Israeli cloud and data centre security specialist Guardicore — a startup that provides micro-segmentation technology that “logically divides the enterprise into distinct security segments, down to the individual software and workload level.”)

Tech M&A in 2021 busting through the previously unimaginable $1 trillion ceiling comes as private equity (PE) and venture capital (VC) funds sit on record dry powder (committed, but unallocated capital; i.e. cash reserves) with PE firms alone recording $1.9 trillion in dry powder earlier this year, according to IHS Markit.

Tech M&A in 2021 has already smashed through the $1 trillion threshold, according to S&P Global Market Intelligence's 451 Research -- the first time the dollar value of deals has hit 13 digits.
Credit: 451 Research’s M&A KnowledgeBase  

451 Research, part of S&P Global Market Intelligence, pointed to three main drivers of tech M&A in 2021 breaking the $1 trillion mark, saying SPACS (shell companies formed to raise capital for M&A) were contributing to the record run.

“But even excluding de-SPAC deals, spending of $580 billion in the first three quarters of 2021 has eclipsed all but one entire year in our M&A KnowledgeBase.”

Daly also pointed to “massive bets by rich vendors that hadn’t previously spent much on M&A such as Square and Zoom Video Communications” and, yes, PE firms, noting that “the pressure to put their record amounts of capital to work, combined with one of the most receptive loan markets in history, has spurred buyout activity in tech to record heights. PE firms have already announced an all-time high of $150 billion in spending so far this year.

“At their current rate, buyout shops will put up as many $1 billion+ deals in 2021 as the two previous years combined,” he added in a report shared on September 29.

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Despite mega-deals like Salesforce’s $27.7 Slack buyout, tech M&A in 2020 actually fell year-on-year. with only 13 deals worth over $1 billion, against 28 announced in 2019, according to Ciesco.

The firm tracks tech, digital, media, and marketing deals, and identified 1,091 in 2020. The US and UK were the most active markets, with 505 and 143 deals respectively. France, 53, Germany, 51, and Canada, 43, trailed.

Selected central bank balance sheets. Credit: BOE

In possibly unrelated news, central bank balance sheets have swollen immensely amid sustained unconventional monetary policy that has pumped trillions into financial markets and pumped up asset prices as investors chase yield.

As Dr Mohamed El-Erian, President of Queens’ College Cambridge and Chief Economic Adviser at Allianz, told the UK’s House of Lords for a report on QE published this year: “Assets are totally decoupled from [economic] fundamentals.”

(The Bank of International Settlements, or BIS, grudgingly admits meanwhile in a recent paper that “while low interest rates mitigate income inequality substantially, their impact on asset prices, especially equities, may have the side effect of increasing wealth inequality in the near term.) But that is, of course, a different story.

See also: LIBOR laggards win a “synthetic” reprieve from the FCA. Wait — AI didn’t fix it?

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