Technology industry outlook

As we enter the final quarter of 2024, the mergers and acquisitions sector continues to be hampered by high interest rates, inflation and geopolitical factors. The technology industry has not been immune to the sluggish deal environment, as the increased cost of capital has resulted in a sustained valuation gap between buyers and sellers. While the Federal Reserve’s 50 basis point rate cut in September is expected to serve as a catalyst for M&A, acquirers are still cautiously seeking positive signs in the economy to gain greater confidence in deal outcomes. With buyers prioritizing risk aversion and sellers failing to adjust to valuation expectations, parties must continue to explore creative ways to reduce the bid-ask spread and close deals.

Despite recent economic and geopolitical challenges, the technology sector is poised for a robust recovery. High interest rates and tensions impacted growth in 2022 and 2023, but as rates are expected to decline by late 2024, liquidity constraints should ease, fueling investment in AI and cybersecurity. The IPO market shows signs of revival, with Nasdaq reporting nearly 100 companies initiating the IPO process. While investor confidence grows, factors like inflation and the upcoming presidential election could affect timing. Nevertheless, decreasing borrowing costs and increased capital flow are set to drive sustained growth and innovation in the tech industry starting in 2025.

The emergence of new technologies is sending shock waves through the middle market business environment, with organizations quickly evaluating how to leverage innovation to enhance efficiencies, improve the customer and employee experience, and reduce costs. Everyone is talking about AI, and many companies—including those in media and entertainment—are set to ride that wave. In addition, telecom companies are working to satisfy the appetite for more high-speed connectivity with 5G-supported edge computing. How disruptive will the advancements in natural language processing, generative AI and the expansion of 5G infrastructure be to the middle market? Only time will tell, but the data-backed trends suggest the impact will be significant.