Are you involved in M&A transactions where software is a major part of the deal? Here are our predictions for tech M&A trends to watch out for in 2020.
The turn of the calendar is always a time for reflecting on the past year and looking forward to the next. This applies to business as well as life, and in the Black Duck Audits business, the tech M&A market and trends in due diligence are key to our plans. Here’s a summary of what our studies have led us to expect in the new year.
There will be a rebound in global tech M&A volume. The period of 2016–18 was amazingly steady, but volume was down almost 20% in 2019. The Intralinks Deal Flow Predictor (based on their view of upstream M&A activity and the only regular forward look I am aware of) is expecting a 6% increase year over year for the first half, with tech sectors high up on the list in North America and Europe/Middle East/Asia. Political kookiness in the U.S. and U.K. is already baked into investors’ activities, so the U.S. election should have little impact. However, while Brexit concerns are already anticipated, expect some disruption for U.K. investors and targets.
Private equity buyers will snap up more than a third of tech M&A deals. Their piece of the market has ramped steadily from about 20% five years ago. And as such deals will be concentrated, 24 of the top 25 tech investors (by volume) are financial buyers, with Vista continuing to lead the pack.
Tech due diligence timelines will continue to tighten. Speed is often a deal sweetener for PE buyers, so the PE influence means quicker deals and less time for tech due diligence. PE firms will consolidate tech diligence to fewer vendors for efficiency. Strategic acquirers will need to refine their playbooks to keep up. In some cases, buyers will push elements of their due diligence to post close. Better late than never.
Perhaps boosted by a high-profile breach—we seem due since Equifax—application security will again ratchet up as a concern for buyers. Most buyers today take it for granted that they need to plug holes in the code, so investment in security remediation will become a prominent part of post-close remediation plans.
Acquirers will become more quantitative in assessing technology across all areas of codebase risk: licensing, security, and quality. There’s a growing need to consolidate into a single view. The Black Duck Audit team will provide leadership in this area and will come up with a holistic view of the combined risks, likely based on evaluating total technical debt.
Every year brings challenges and opportunities. Here’s to a happy, healthy 2020.
Phil is the general manager of Synopsys’s Black Duck Audit business auditing the composition, security and quality of software for companies on both sides of M&A transactions. He focuses on software due diligence best practices and the M&A market. He also works closely with the company’s law firm partners and the open source community and is a frequent speaker on open source management and M&A. Phil chairs the Linux Foundation's Software Package Data Exchange (SPDX) working group which created an ISO standard for Software Bills of Materials (SBOMs). With decades of software industry experience, Phil held senior management positions at Hammer/Empirix and High Performance Systems, a startup in computer simulation modeling. He began his career in marketing and sales with Teradyne's electronic design and test automation (EDA) software group. He’s also written a book on fly fishing. Phil has an AB and an MS in engineering from Dartmouth College.