Technology M&A Survey

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

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

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

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

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

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

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

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

Adoption of AI-focus

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

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

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