M&A Surges as Tech Transformation Accelerates | Stephens

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M&A Surges as Tech Transformation Accelerates

Aug 23, 2021

In the numerous discussions held with corporate management teams during the early stages of the pandemic, one word was uttered more than any other – “survival.” For many companies, survival still equates to success in what remains a highly uncertain economic environment. However, far from just surviving, one element of the economy has been thriving over the course of the past year or so: the technology sector. As many parts of the world remain under strict pandemic restrictions, the rapidly evolving tech space continues to demonstrate its importance in the ongoing functioning of the global economy – which has accelerated the interest of the marketplace.

Remote Work Gains Traction
The amount of change within tech has been profound, particularly in relation to the workplace. While remote working was already well established, the pandemic is likely to forever alter working habits – as corporates recognise professionals can be productive anywhere, and at any time. Many businesses will reap the benefits of widespread videoconferencing use, both in decreased office space requirements and a reduction in the need for national and international travel.

Enterprises and governments are increasingly making use of remote tools, applications, and video to manage interactions historically undertaken face-to-face. This is driving increased
concerns about personal data and the protection of corporate information. These trends are likely to persist and become more embedded, supporting further growth in digital
transformation. It will also heighten investor appetite for companies servicing these uses directly, or in adjacencies. Data management, control and security will be increasingly important as the use of remote technology services continue to grow.

Additionally, as a result of more remote working, businesses have also recognised the need to prepare for increased cybersecurity threats. Home-based networks are inherently less secure than a network within the office, particularly with the wireless nature of most home networks. For a hacker, there are numerous vulnerable areas to exploit within these networks. There is also a major difference between a company-issued laptop featuring up-to-date security software patches and the standard security software on personal computers.

Digital Revolution Intensifies M&A Activity
With expectations of a different post-coronavirus corporate world, legacy tech system providers have seen the writing on the wall and initiated migration plans. This change has been rapid.
Less than two years ago, a maintenance service provider for legacy office IT equipment would have been viewed as a stable source of long-term recurring revenues. However, such systems
are becoming increasingly obsolete, as the focus turns to more efficient software-based solutions utilising the power of the cloud.

This pressing need to adopt transformative tech solutions has powered a major M&A surge in the technology space over the past 12 months. Despite initial expectations of a relatively muted M&A environment due to countless pandemic-related uncertainties, there has been significant investor activity.

Information technology deals accounted for approximately 20.8% of all M&A deals globally in the second quarter of 2021, compared with approximately 12.9% of all deals in 2011, according to PitchBook data1. M&A activity in the IT sector for the US, Canada and Europe averaged nearly $400 billion in value annually from 2016 to 2020, and this year surpassed $428 billion in value from January through the middle of August, according to PitchBook.

European companies have been ripe for the taking, with American investors particularly drawn to the lower valuations on offer relative to opportunities in the US. This is highlighted by recent Refinitiv data, which showed takeovers of UK companies hit a 14-year high by value over the first seven months of 20212.

While US groups are increasingly targeting Europe, it is not all one-way traffic. For example, earlier this year we served as the exclusive financial advisor to Radius Payment Solutions – a holding company of UK mid-market private equity firm Inflexion – on its acquisition of the Huntington Beach, California-based firm Modus3. Through this strategic deal, Radius – which has a suite of telematics and connected vehicle products – expands its reach into insuretech. This is just another example of how digital transformation is powering what is likely to be a multiyear M&A wave within tech.

We also are the exclusive financial advisor to Austin-based Periscope Holdings, which announced the signing of a definitive agreement for the Canada-based SaaS solutions provider mdf commerce to acquire the Texas firm4. The transaction, once complete, is intended to better position Periscope – which already serves U.S. states, agencies and suppliers – to operate as an eProcurement leader in North America that potentially can serve mdf commerce’s existing Canadian and US government agency customers.

One of our recent domestic transactions has been to serve as the exclusive financial advisor to Nashville-based CyberMaxx on its acquisition by the Chicago-based private equity firm Periscope Equity5. CyberMaxx is a healthcare-focused managed security service provider (MSSP) that helps prevent, detect and respond to cyberattacks for hospitals.

Invaluable Specialist Advice
Our seasoned cross-border Technology bankers have deep industry expertise, which combine with the significant capabilities of our Debt Capital Markets and Equity Capital Markets bankers to deliver unique insights and strong execution for our clients. Stephens advises across a full range of investment banking solutions. We work with companies of all sizes, and have a long history of successfully serving middle market firms.

Our technology team has extensive expertise that includes business application software, infrastructure software, communications and enterprise systems, internet and information services, security software, healthcare information technology, financial technology and payments, as well as vertically focused software applications.

  1. 1. https://pitchbook.com/news/reports/q2-2021-global-ma-report 2. https://www.reuters.com/business/uk-takeovers-hit-14-year-high-first-seven-months-2021-2021-08-03/ 3. https://www.stephens.com/globalassets/investment-banking/transaction-pdfs/2021_06_01_radius.pdf 4. https://mcusercontent.com/d2821801251c47ba1c797f20a/files/583240b4-b2b3-aa02-c952-d06a42818dd1/2021_08_12_Periscope.pdf 5. https://mcusercontent.com/d2821801251c47ba1c797f20a/files/ed376572-abed-ab7c-666b-45638077bbfe/2021_08_17_CyberMaxx.pdf
  2. This article has been prepared solely for informative purposes as of its stated date and is not a solicitation, a recommendation or an offer, to buy or sell any security. It does not purport to be a complete description of the assets, properties, securities, markets or developments referred to in the article. Information in the article was obtained from sources considered to be reliable, but has not been independently verified or confirmed. The views and opinions expressed in the article are those of the author. Any expressions of opinion speak only as of the date of preparation of the article, do not necessarily reflect the opinions of any other person or entity, and are subject to change without notice. No subsequent publication or distribution of this article shall mean or imply that any such information or opinion remains current at any time after such date of preparation. “Stephens” (the company brand name) is a leading family-owned investment firm comprising the businesses of investment banking, advisory, sales and trading, research, insurance and wealth management. Founded in 1933, Stephens’ US operations are headquartered in Little Rock, AR, with additional locations in strategic domestic markets and a European presence in England and Germany. Stephens is committed to building long-term value for corporations, state and local governments, financial institutions, and institutional and individual investors. Stephens’ affiliates include: Stephens Inc. (offers securities products; member NYSE SIPC), Stephens Investment Management Group, LLC, Stephens Insurance, LLC, Stephens Capital Partners LLC, and Stephens Europe Limited. For more information, visit www.stephens.com. © 2021 Stephens. Stephens Inc. (Home Office: 111 Center Street, Little Rock, AR USA, 501-377-2000) is regulated by the United States Securities and Exchange Commission and the Financial Industry Regulatory Authority and Stephens Europe Limited (Registered office: 12 Arthur Street, London, EC4R 9AB, Registered number 8817024) is authorised and regulated by the Financial Conduct Authority.