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Private Equity to fuel 2018 tech acquisitions

Private equity funding is expected to drive continued merger and acquisition activity in 2018 say researchers. In the 17th edition of the EY Technology, Media & Entertainment and Telecommunications (TMT) Global Capital Confidence Barometer (CCB), 45% of senior executives across the TMT industry say they expect heightened M&A competition in the year ahead. Of those anticipating greater competition, half see challenges coming from private equity (PE), and TMT leaders surveyed ranked the return of PE buyers as the top theme in the M&A market for the coming year.

At the same time, 81% of TMT executives expect the economy to continue improving — an indicator that has quadrupled over the past year. In the same time period, confidence in the stock market outlook has risen 18 percentage points, with 52% expecting improvement in equity valuations. Additionally, 77% of TMT executives expect corporate earnings to improve, up 23 percentage points on last year.

Growing optimism about economic and financial conditions create an environment ripe for dealmaking. As such, near-term TMT dealmaking intentions remain near record levels. In aggregate, 56% of TMT leaders surveyed intend to pursue acquisitions in the next 12 months, well above the 45% average reflected in the report since April 2013.

Near-term dealmaking intentions in the technology sector (57%) are trending higher this year than in 2016 (50%). Combined, nearly half (48%) of technology executives are pursuing deals for growth and innovation, while 40% say the main driver is acquiring technology or talent, demonstrating a continued interest in "acqui-hire" deals, which focus on talent acquisition.

However, overall EY analysis projects a year-over-year decrease of 9% in deal volume and 34% in deal value for full-year 2017.

Ken Welter, EY Global Technology Transaction Advisory Services Leader, says:"The year ahead will answer the question of how much of today's tech sector optimism translates into tomorrow's deals. Technology companies should realize their dealmaking intentions by taking deliberate steps to re-evaluate their portfolio review process, leverage modern analytical tools, prepare for an increasingly competitive M&A market and pre-plan for integration."

The 2018 ITEuropa Predictions report will be available shortly, including a major section on M&A plans for the year.