United States

2018 Annual Information Technology Industry Spotlight



Digital revolution across business lines and infrastructure is complex, with underlying factors in the lesser-noted components of the ecosystem often serving as a bellwether of things to come in the industry and M&A cycle. For example, as a recent issue of RSM’s The Real Economy details, semiconductors, among other tech segments, could be affected more directly than others across the sector if trade issues between the US and China persist, given ripple effects on supply chains will range from direct to adjacent pressure. Moreover, the tech sector is a victim of its own success when it comes to talent. An all-too-common refrain from executive search firms for startups and established companies is that not only is talent costly but hard to come by, despite alluring wages, simply because supply is low. RSM industry experts expect this will result in greater geographic diversification on the part of tech companies, particularly those in the US middle market, in order to tap local supplies of talent where labor market dynamics may not be as tight.

These factors lie more in the realm of macroeconomic, but combined with the dynamics of dealmaking within these verticals, paint an interesting picture for key tech verticals. For example, consolidation within semiconductors has been fierce for some years now, but as the rise of application-specific semiconductors showed, there may be more room for specific use cases within research and development (R&D) than initially thought. However, headwinds such as regulations, protectionism, and more have combined to throttle the pace of M&A within semiconductors specifically. Accordingly, dealmaking looks set to be subdued within that realm, which will only further place the emphasis on M&A within specialty software and related hardware systems going forward as key components of the cycle.

Big picture

The remarkably robust mergers and acquisitions (M&A) cycle over the past decade owed a significant portion of its resilience to consolidation and disruption within technology, specifically software. Beyond the revolution in mobile, software has spread into a transformative horizontal rather than a vertical, pervading multiple business segments as startups raced to develop custom applications for specific niche use cases and as incumbents consolidated their market share. Hence the meteoric rise in equities such as the FAANGs—Facebook, Apple, Amazon, Netflix and Alphabet (Google)—and corresponding strength in M&A. Despite the return of volatility to markets, the M&A cycle in technology specifically looks as robust as ever, with the third-highest quarter in terms of deal value in years, giving 2018 a strong finish. Granted, mega-deals drove much of that mammoth sum, but as is not normally the case, such lofty prices may not necessarily dissuade buyers just yet, simply because for many the demand dynamics are still in place. For example, Apple has a cash hoard of $245 billion—it can keep purchasing startups that fit within its strategic initiatives for a long while yet. Moreover, technology and health care are two of the most popular sectors for newer entrants on the part of private equity (PE) sponsors. In short, even given high transaction multiples, as opposed to other sectors, it may be a while before we see a toll exerted in the M&A cycle. Although the first wave of the digital revolution has culminated in app-based ecosystems becoming household names, such as Uber or Airbnb, the second wave of innovation and consolidation in hardware and other important niches such as cybersecurity will continue to encourage M&A going forward.

Looking ahead

As noted by David Van Wert, partner with transaction advisory services at RSM US, in the penultimate edition of the IT Spotlight, the positive factors for technology M&A still outweigh any bearish factors. Despite slowing macroeconomic growth indicators, and even slower growth within the industry, additional RSM industry experts also predict that many businesses are still willing to swallow high multiples in exchange for the potential of remaining competitive via acquisition of innovative technologies (i.e. outsourcing R&D). Ultimately, the pressure from waning economic growth and flatlining equities for the broader technology sector may eventually exert a subduing effect on technology M&A, but for the near term, the M&A cycle looks set to remain strong if not at record levels, necessarily. Again, a key component will be the participation of PE players, as their incentives and timelines may prove longer-lasting than those of strategics to some degree. In addition, newer entrants and more established technology-focused PE firms such as Thoma Bravo or Francisco Partners also boast ample resources, given the fundraising bonanza that has characterized the PE market for the past few years. Moreover, should the macroeconomic indicators, particularly around trade, turn out rosier than expected, that will be even more of a boost to the M&A cycle. It’s difficult to foresee whether the pace of consolidation within software across software-as-a-service (SaaS) segments will prove to be as long-lasting as the initial wave of transformation, given the relative populations of each segment, so that will remain a variable to monitor going forward.

Our new Insights for Technology Companies newsletter will keep you up to speed on these and other trends. In addition, RSM’s latest e-book, Scaling Up: Successfully Growing Your Technology Company, offers insights related to preparing your business for future growth.


Datagraphic available for download.

Additional industry dealmaking insights

How can we help you?

Events / Webcasts


Impact of the final regulations on separately computing UBTI

  • February 03, 2021


Credit Fund Webcast Series: Market data and economic update

  • October 27, 2020


Enhancing family offices – webcast series

  • September 30, 2020