2016 was a record year for global tech M&A, with deal value reaching $500 billion, including mega-mergers such as AT&T-Time Warner, Microsoft-LinkedIn, Oracle-NetSuite and Dell-EMC. Technology deals, including media and telecom, accounted for about a quarter of all M&A deals last year; and, there is reasonable evidence that this trajectory will likely continue in 2017. According to business leaders surveyed at the BofAML Technology Innovation Summit, 75 percent say tech M&A will stay “hot” in 2017.

Looking ahead with a positive outlook for a healthy year of dealmaking in global technology, here are some trends we anticipate in 2017:

An abundance of capital will fuel M&A in the tech sector
High CEO confidence paired with low financing costs fueled a number of 2016 acquisitions, including Symantec-Blue Coat, Symantec-Lifelock, AT&T-Time Warner and Dell-EMC. Capital markets remain open to provide financing for M&A, and 15 of the largest tech companies in America are flush with $700 billion in cash for potential acquisitions.

Tech companies continue to increase total addressable market through acquisition and consolidation
Legacy technology companies are shedding old assets and consolidating to be more agile in addressing newer competitive threats – case in point, CSC and HP Enterprise Services are expected to complete their merger into a $26 billion IT services giant in April 2017.

In a low-growth economy, the opportunity to expand channels and product offerings are key reasons for acquiring companies rather than developing new products from scratch. Traditional tech companies are targeting faster-growing and increasingly competitive business segments. This is evident in 2016 deals led by Salesforce-Demandware, Oracle-Netsuite, and Microsoft-LinkedIn. Tech innovations in cloud, artificial intelligence and Internet of Things served as the most sought-after M&A targets in 2016. In general, we are seeing tech companies acquiring smaller-mid-sized niche tech companies to augment existing product gaps with acquisitions rather than to build new technologies on their own.

Non-technology companies have their eye on tech upstarts for innovation
Massive volumes of data are generated within enterprises daily, and non-technology companies are realizing the need to acquire complementary partners that can increase their tech prowess. Companies in vertical industries such as auto, finance, healthcare and energy are teaming up more frequently with tech startups to expand into competitive segments of the market where there is potential for new growth. Of the 135 deals in Q3 2016 with non-tech buyers, global audit firm EY noted that more than 20 deals targeted big data analytics, nearly 15 targeted payments and financial services technology and more than 10 targeted health care information technology.

According to Accenture, global investment in financial tech ventures has more than tripled in the last five years from nearly $930 million in 2008 to more than $2.97 billion in 2013. Banks too are investing in technology to meet the evolving demands of their clients and improve client service capabilities that keep up with the rapid pace of mobile and payment innovations. In addition, B-to-B and B-to-C companies are also looking to leverage innovative tech to be more user-friendly and capture millennial customers.

Looking forward to a healthy dealflow
While it is too early to be certain how 2017 will unfold, there is definite optimism in the tech sector. We expect momentum to continue in core technology acquisition drivers – focusing on software innovation in cloud, artificial intelligence and Internet of Things; consolidation of legacy enterprises; and, increasing vertical investment in user-friendly technologies.

Scott Olmsted is the group head of the tech, media & entertainment group in global commercial banking, Bank of America Merrill Lynch. Based in Los Angeles, Scott leads a team which advises emerging growth to public companies across multiple segments of their business including capital raising and advisory, delivering the full capabilities of the bank.

Deal flow Technology, media and telecom