Technology industry outlook

Tech IPOs have slowed in North America over the past couple of years. As technology companies progress through their lifecycle—startup, growth, maturity and exit/IPO—investors typically follow along. However, if an expected step on this trajectory does not materialize, investors do not reap their returns.

In the face of a funding environment characterized by scarce venture capital, reduced business valuations and fewer exit options, technology companies must embrace innovative strategies to secure investment, drive growth and strengthen their competitive advantage. Technology companies have two main ways to exit, through IPO or acquisition. 

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.