Tech Deals Decline By 55% In Q1 2023: Report

A report on technology industry revealed significant drop in the number of deals in the first three months of 2023. During this period, only 150 deals were announced as compared to 273 deals in Q1 CY2022 and 224 in Q1 CY2021.

The statistics from Q1 CY2022 represent a three-year low in the number of tech deals. In Q1 CY2020, just 61 deals were announced.

“Global IT services spend is likely to grow in about 8 per cent range next few years. Given macroeconomics, there will be caution in rest of calendar 2023 and increased scrutiny on new investments, but customers will continue to repurpose to areas of high impact such as CX and data/analytics to gain market share,” said Hiral Chandrana, Global CEO, Mastek group.

The EY-nasscom report also highlighted that current soft guidance by large IT players meant cautious outlook would prevail in the near-term because of delayed client decision-making and an uncertain environment compounded by the recent banking crisis.

The report also noted that outlook on deal activity for mid-sized companies (EV< USD 300 million) is expected to remain resilient across the broader M&A market and would likely hold true for the highly fragmented tech services industry, albeit moderated from 2022/2021 levels.

Across industry segments 2022 saw record deal volumes. IT services and ER&D segments stood out, with activity levels exceeding the previous five years.

Meanwhile, it is expected that IT services and BPM would continue to attract new buyers due their fundamental of high profitability and structural resilience in down cycles.

“Clients are also looking to get more ROI from their cloud & digital investments, so they can drive business value, while balancing with cost optimization initiatives. Enterprises are driving data-driven programs, and large platform leaders such as Oracle, Salesforce, ServiceNow, AWS, Microsoft, Snowflake and SI’s continue to differentiate with industry solutions – patient experience & interoperability in Healthcare, or connected devices with IoT in discrete industries, or AI driven competitive intelligence in Retail/Consumer are some examples,” Chandrana added.

Ideal Market For Strategic Buyers 

Given the market conditions, the report noted that inorganic strategy would be a key way of growth.

These are the ideal market dynamics for cash-rich strategic buyers considering reduced competition from financial sponsors (PE/SPACs), muted IPO market and increasing cost of debt, the report mentioned.