Strategic Alternatives

Is Tech Ready to Transact?

Vito Sperduto, Global Head of M&A

Many tech players remain cash rich and ready to transact. Meanwhile, well capitalized corporates and private equity are also looking to M&A. Who will win in today’s tough environment?

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By Vito Sperduto & Larry Grafstein
Published March 2, 2023 | 4 min read
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Key Points

  • Despite widespread uncertainty caused by the war in Europe and raised interest rates, 2022 still saw strong M&A deal volumes across multiple industries.
  • Tech companies dominated M&A markets last year, and are primed to stay on top in terms of transactions. Meanwhile fintech deals continue to navigate the disparity between traditional incumbent firms and smaller disruptors. 
  • Heading into 2023, a big uptick in the M&A sector is expected as a result of many factors, including an increase in private capital and a lower spend in the second half of 2022.
  • The interaction between the challenged IPO market and the M&A market will be critical to the acceleration of M&A volumes going forward. 

Mergers and acquisitions are a central strategic alternative available to companies looking to monetize, expand or diversify. But, making the right deal at the right time remains paramount - and understanding the M&A landscape can prove advantageous to companies and investors.

In this episode, we revisit the state of M&A markets and share perspectives on the technology and fintech deal landscape in the year ahead with special guest Jason Gurandiano, Head of US Technology Investment Banking and Global Head of Fintech at RBC Capital Markets. 

M&A volumes held during a volatile 2022

“2022 was a tale of two halves,” says Vito Sperduto, Global Head of M&A. “We saw a very strong trend in the first couple of quarters, in terms of announced deals. But certainly the second half tailed off dramatically as we started facing some headwinds.”

These headwinds include the ongoing geopolitical and economic uncertainty catalyzed by Russia’s invasion of Ukraine - alongside rising inflation and the Federal Reserve’s continued interest rate hikes. While many are keen to emphasize that comparisons to 2021 activity - a drastically bumper year for M&A - leaves 2022 looking weak, the period still saw a strong deal volume overall.

“The second half of the year was down relative to 2021,” says Sperduto. “But if we think about overall M&A activity relative to history, it was only off by about 10 or 11% compared to the five years pre-COVID. It is just that 2021 was such an outsized year.”

But what does 2022’s relative success against the odds reveal?

“It reinforces the notion that good deals will always get done, even in difficult environments,” adds Larry Grafstein, Deputy Chairman, Global Investment Banking. 

“I think tech is set up for an outsized year from an M&A perspective.”

Jason Gurandiano, Head of US Technology Investment Banking and Global Head of Fintech, RBC Capital Markets


Technology dominates the market

When it comes to M&A, technology continues to dominate larger deals. Private equity has been extremely active in tech and fintech over the last 5-7 years and a number of companies have seasoned within the portfolios of private equity firms - reassuring M&A markets, which tend to thrive on confident valuations. In 2022, 37% of all M&A deals were technology related, and today transactions are often tech focused.

“I think tech is set up for an outsized year from an M&A perspective,” says Jason Gurandiano, Head of US Technology Investment Banking and Global Head of Fintech. “There is an increasing certainty relating to the macro environment and some of the concerns about the economy, and its impact on earnings are being mitigated in the reporting we see, particularly from public companies.”

“We certainly see a lot of the tech players are very cash rich and ready to do transactions,” adds Sperduto “It’s the sector most primed to stay at the top in terms of deal making.”

Zooming in on the fintech sector specifically, the trend sticks as financial services organizations continue to spend big on fintech, accelerating growth across the industry. There is an interesting divide between companies in the space, however, as larger fintech incumbents and today’s wave of nimble disruptors are looking to make unusual but exciting new deals. 

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“Good deals will always get done, even in difficult environments.”

Larry Grafstein, Deputy Chairman, Global Investment Banking


In 2023, is M&A the most viable route to monetization?

When considering the challenges faced by the IPO market, and the fall off of SPACs, there is an argument to suggest M&A volumes could see rapid growth. In 2022, the IPO market dried up, and there is pent up demand as a result. Refinancing has also become less available to companies looking to raise capital as a result of the current economic cycle. Has M&A become the most viable route to monetization, expansion or diversification?

“There’s really only one track at the moment. It feels like anyone that wants to do a deal in the next six to nine months can't count on the IPO market reliably being there,” says Grafstein. “Fintech was a big beneficiary of the strong IPO market over the last several years, so that is something to watch in 2023 –  the interaction between the IPO market and the M&A market.”

“We could see an uptick of 10%-15% this year, which would make it a top five M&A year.”

Vito Sperduto, Global Head of M&A, RBC Capital Markets


Looking at the year ahead

What else can we expect for M&A going forward? The slower start to the year is likely to continue as economic uncertainty remains, but if the interest rate hiking cycle finishes, there could be a strong increase in M&A activity and opportunities in the second half of the year.

With a 21% increase in private capital, cash on balance sheets at all-time highs from a percentile perspective, and lower spending towards the end of 2022, dollars per transaction are should rise. There will also likely be further divestment, with M&A deals focusing on smaller pieces of a company in a bid to derisk transactions. 

“We could see an uptick of 10%-15% this year, which would make it a top five M&A year,” says Sperduto.

“We don’t have the type of tailwinds that we had a couple of years ago,” adds Grafstein. “But M&A remains an integral part of the strategic landscape, a key capital allocation decision and one that has a forward motion even in the toughest environments.”

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