The level of global mergers and acquisitions (M&A) activity involving technology providers will surpass previous highs recorded in 2018 by 2022, according to Gartner, Inc.

M&A activity has rebounded sharply in 2021 after acquisitions of tech providers were briefly impacted in 2020 as the economy began to recover.

“Market conditions for deal making will continue to improve as volatility stemming from Covid-19 subsides,” said Max Azaham, senior research director at Gartner.

“Tech CEOs pursuing acquisitions should anticipate increased competition for targets and take steps to gain advantages over other acquirers to earn seller acceptance,” he said.

Acquisition activity was most adversely impacted during the second quarter of 2020, but the move in the fourth quarter was higher than in the last two years.

Technology and Service Provider, M&A transaction value, stood at $1264 billion in Q4 2020.

The growth was led by acquisitions of communications providers in the second half of 2020, followed by acquisitions of services and software companies.

Financial services companies, predominantly private equity firms, showed increasing interest in acquisitions of technology providers.

“Throughout 2020, financial acquisitions of software providers represented over half of all such acquisitions. Despite software already being the largest category, financial acquirers’ increasing interest should drive higher activity in 2021,” the report said.

The largest M&A activity gains in the second half of 2020 involved financial acquisition of communications providers (93 per cent growth). Acquisitions of services providers by financial acquirers were 30 per cent higher in the fourth quarter of 2020, compared to the prior two years’ average.

Consolidation of providers with high degrees of overlap grew by 65 per cent and 40 per cent in services and software markets, respectively, in the second half or 2020 than the average number of M&A transactions in 2018 and 2019.

“These consolidation trends suggest tech CEOs must be prepared for competitive landscapes where key competitors merge, especially among service providers,” the report said.

“Instead of making acquisitions or being acquired, tech CEOs will start to consider partnerships and ecosystems to level the playing field against larger companies resulting from consolidation in their markets,” said Azaham.

The expected uptick in M&A activity throughout 2021 must include existing customers behind.

“Successful acquirers will consider the implications for end-users and make customer experience (CX) a top priority across each stage of the M&A life cycle,” as per the report.

CIO customers of vendors undergoing an integration expect minimal service disruptions and transparent communications on the product, pricing and support changes, if any.

“Without empathy and a deep understanding of what motivates the existing customer base, organizations risk acquiring a customer base that will churn following deal closure,” said Azaham.

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