Technology M&A Survey

After a downturn, dealmakers foresee a turning point and embrace the AI era.

In 2024, a sense of recovery begins to ripple through the technology mergers and acquisitions (M&A) market. We notice a trend as deal volume and value start to bounce back, although they still remain noticeably below the peaks we saw post-pandemic. Responses from participants in the KPMG 2024 Technology M&A Survey reveal caution when talking about upcoming deal prospects in the next year. Only a slight majority predict an overall economic improvement, and there were widespread apprehensions regarding the persistent political and regulatory uncertainties that could potentially impact dealmakers. Additionally, businesses are grappling with the fast-paced developments in artificial intelligence (AI), which, despite posing challenges, has also sparked significant interest among technology M&A circles.

This report delves into the key findings from our survey and the significant implications they could have on technology M&A. We'll begin by exploring the respondents' views on the M&A landscape and the specific factors influencing deals. In the latter part, we will highlight the varying effects from market changes (e.g., such as AI trends) have had on deal target selection, due diligence and value creation according to our survey participants.

About the survey: In September 2024, KPMG surveyed 150 US-based technology companies and private equity (PE) firms about their current M&A activity and outlook for the next 12 months. The annual revenue of organizations surveyed ranged from less than $50 million to more than $5 billion.
Respondents included C-level officers, other business leaders with deal-related responsibilities, and PE and venture capital investors. Key statistics about respondents for the survey are as follows:

Key Findings

Topic: Economic environment

1. Economic sentiment is more positive for the next 12 months than for the next 6 months

PE and corporate investors anticipate macroeconomic improvement over the next 12 months, though expectations are mixed for the six-month outlook. Additionally, associated expectations for M&A activity as per KPMG’s mid-year M&A pulse is that 84% of PEs and 48% of Corporates anticipate more deals in 2025 compared to 2024. Such expectation is in line with an increase in YoY deal volume in Q3’24 of ~12% across corporates and PEs (source: Capital IQ)

Economic performance

Survey results above show that most dealmakers expect the economy to stay neutral (52% Corporate / 29% PE) or decline (21% Corporate / 42% PE), but outlook improves for the next 12 months, with 55% of corporates and 40% of PEs anticipating economic improvement

Topic: M&A financing

2. Securing financing has been more challenging year-to-date (Sep’24), boosting the role of non-bank lenders and additional financing terms

Still, this hasn’t blocked deals, and continued interest rate cuts may further promote deal financing (source: KPMG Economics)

Q. On a scale of 1-7, what is your expectation of the macro-economic environment over the next 6 and 12 months?(a) N=150; Single select for each column

Deal financing

Survey results above show that corporate respondents agree that securing financing (43%) has become more challenging year-to-date (Sep’24) in light of changes in the macro-economic and corporate environments. Additionally, 69% of PE investors find that non-bank lenders have become more prominent in the market

Topic: Regulation

3. The biggest risk for corporate dealmakers is navigating regulatory hurdles, heightened by new Hart-Scott-Rodino (HSR) rules and stricter antitrust scrutiny.

Integration risks are also a concern – but both can be minimized with proper planning and the right approach.

Q. Based on your understanding, which are the top 5 deal risks that are likely to affect your M&A strategy?

Deal risks

Survey results above show 73% of corporate investors find regulatory and integration concerns among the top 4 risks along with market volatility and uncertainty around future financial performance

Q. Overall, how impactful will the new Hart-Scott-Rodino (HSR) Act’s rules be to your M&A process? HSR Rules require disclosure of more information in HSR filings to provide the FTC and DOJ more definitive insight into potential transactions and the intended relationship of the parties after closing

Political climate - Hart-Scott-Rodino

Survey results above show 80% of dealmakers find that HSR Act’s rules to have a moderate to significant impact to their M&A process

Topic: Tax

4. Corporate respondents are more concerned about the potential impact of increasing tax rates on deal volume, with the majority anticipating a moderate to high impact.

In contrast, PE respondents are more divided, with most expecting a moderate impact but a significant portion foreseeing little to no effect.

Q. To what extent do you believe deal volume would be reduced if there was an increase in the corporate income tax rate (i.e., an increase to 25% or 28%)?

(a) N=150; Slider scale (1-7)

Corporate tax rates cab be a significant lever for M&A activity

Among the corporate respondents (43%), apprehension on M&A in regard to increasing tax rates is high. In contrast, PE respondents' views are more moderate (29%)

Topic: Geopolitics

5. Conflicts in Israel and foreign relations with China are the top international issues expected to impact M&A decisions.

Both PE and corporate respondents showing heightened sensitivity to these factors. In contrast, the Ukraine conflict and UK/Europe political divergence are more concerning for corporates, while localized issues like Taiwan and India's political changes are seen as having minimal impact.

Q. Which of the following international matters are expected to impact your M&A decisions over the next 12 months?

Political climate

Survey results above show that the top international issues impacting M&A decisions include conflicts in Israel (63% PE / 71% Corporate) and China's foreign relations (83% PE / 41% Corporate). While Corporate respondents view the conflict in Ukraine (53%) and UK/Europe political divergence (54%) as significant, these issues appear less impactful on PE's M&A strategies

Topic: Target selection

6. Corporate investors generally find more crucial the presence of artificial intelligence (AI) capabilities in M&A acquisition targets.

Whereas PE firms appear more cautious in considering AI capabilities of acquisition targets as crucial for target selection. Even though PE firms may not currently view presence of AI as crucial in Target company capabilities, 59% of PE investor responses point towards investing in AI infrastructure and commitment to building AI capabilities in their portfolio companies.

Q. How important is the presence of AI capabilities to your M&A target selection?

Importance of AI in target selection

Survey results above show that only 14% of PE investors view AI as critical in acquisition targets. A much higher 58% of corporate respondents consider AI important in this regard

Q. What strategies is your company considering to adjust and thrive in the evolving AI landscape?

Adoption of AI-focus

Survey results above show 80% of dealmakers find that HSR Act’s rules to have a moderate to significant impact to their M&A process

Topic: Due diligence

7. The most significant due diligence issue in technology M&A is centered around accuracy and completeness of financial and operational data from Target companies.

With additional diligence complexities arising from evaluating the scalability of technology platforms (top diligence topic to PE investors) and ensure ensuring data privacy and cybersecurity compliance (top diligence topic to corporate investors).

Q. What are the key challenges you face when conducting due diligence for technology M&A deals?

Diligence challenge

Survey results above show that assessing the accuracy and completeness of financial and operational data is among top 2 challenges in conducting due diligence for tech M&A deals for both corporates (25%) and PEs (19%). Additionally, understanding the true capabilities and scalability of technology platforms is rated the top diligence challenge for PE respondents (21%) while ensuring data privacy and cybersecurity compliance, is rated the top diligence challenge for corporate respondents (16%)

Topic: Value creation

8. Investment decisions are increasingly focused on achieving not just ‘growth’ but ‘profitable growth.’

As the majority of corporate and private-equity dealmakers prioritize profitability and return on investment as the most important financial metrics influencing M&A decisions.

9. Looking ahead to 2025, 52% of corporates and 58% of PEs said they plan to pursue at least one strategic transformational M&A.

As per the KPMG mid-year M&A pulse , a transformational M&A brings about fundamental changes to the combined company’s business model (unlike smaller, incremental acquisitions such as those aiming to enhance specific capabilities or add complementary products).

Q. As an investor, which of your financial metrics are most important to your decision to enter an M&A transaction?

Investment drivers

Survey results above show that profitability and return on investment are the most important financial metrics influencing technology M&A decisions (i.e., these were metrics indicated as ‘most important’ by more than half of corporate and PE dealmakers)

10. The greatest driver of not achieving synergy targets is overestimating growth and underestimating integration costs.

KPMG experience shows that buyers may overestimate growth rates driven by cross-selling and other commercial synergies.

Q. What factors do you find most commonly contribute to discrepancies between initial synergy projections and actual outcomes?

Realizing synergies

Survey results above show that overestimation of growth trajectory (63% PE / 74% corporate) emerged as the primary driver of discrepancies between synergy estimates and actuals, while underestimation of integration costs (34% PE / 59% corporate) also played a significant role, particularly for corporates.

KPMG advises corporate and PE clients in every stage of the M&A lifecycle, providing an execution-focused approach to maximize and accelerate the value creation process. We bring domain expertise, industry depth, and an integrated transformation approach to meet the specific challenges of technology companies, PE, and venture capital investors.