M&A activity in technology is on track for “a very strong year” as deal activity cools slightly from the frenetic pace of the second half of last year. “The pace doesn’t feel as insane as the back half of 2020, but it’s still at unprecedented levels,” said EY global technology, media & entertainment, telecommunications leader Barak Ravid at a media roundtable earlier this week. “The limiting factor to getting deals done is the availability of advisors, so you know it’s very, very busy.”

Deal flow has a high peak to summit if it will top 2020 highs. Global technology and telecom M&A registered at $278 billion in 4Q20, bringing that year’s total haul to $603 billion, according to data from S&P Global Market Intelligence.

But it’s off to a cracking start, and private equity is leading.

“Private equity continues to become a bigger force in tech M&A,” Ravid said. “It used to be a quarter, now it’s 33 percent of activity.”

Surging sector valuations have created a two-tier market from which financial sponsors can benefit. While the top quartile of tech companies have earned share price growth through revenue and margin expansion, the other three quarters have grown through multiple expansion. The bottom 75 percent is increasingly turning to M&A to create the inorganic growth necessary to grow into those multiples, Ravid reasons. 

This year is already home to the biggest leveraged buyout of a cloud software company ever–Proofpoint’s $12.3 billion sale to Thoma Bravo in April. CoreLogic’s nearly $6 billion buyout by Stone Point Capital and Insight Partners and Cloudera’s $5.3 billion sale to KKR and Clayton, Dubilier & Rice are only a few other examples of a tech buying spree. 

Special purpose acquisition vehicle activity has leveled off over the past quarter, but the decline has been at least partially offset by a surge in private equity interest. And remember, that decline might itself be short-lived: active SPACs are disproportionately targeting TMT assets, Mergers & Acquisitions previously reported.

The result is a TMT deal frenzy that could still be in its infancy.