Debt remains cheap. Strategic acquirers and PE firms are flush with cash. It doesn’t take a genius to arrive at the conclusion that Software & Services M&A activity will remain healthy in 2020 all else held equal. (tickers mentioned: ACN, AVGO).
Today’s news that Accenture (ticker: ACN) agreed to acquire Symantec’s CyberSecurity Services business from Broadcom (ticker: AVGO) was hardly a surprise. CyberSecurity was one of the M&A target areas that we expected Accenture to pursue when Julie Sweet was named Accenture CEO in July 2019 (You may review our July 2019 Accenture article HERE).
We expect to see more M&A activity in 2020 across Cloud Computing, AI & Advanced Analytics, Chip Design, Information Services and FinTech – both on the part of strategic acquirers and PE firms.
- Cloud Computing: We expect strong M&A demand for vertical-specific acquisitions such as healthcare IT and PropTech assets.
- AI & Advanced Analytics: Data prep, visualization, machine learning, natural language processing (“NLP”), deep learning and related disciplines require a large number of people to prepare data and train models. Traditional hiring won’t be sufficient to meet demand. Therefore we expect strategic acquirers to make AI-related acquisitions as much for the employee talent as for the revenue.
- Chip Design: There is a growing cohort of startup chip companies designing architectures for advanced use cases. For example, members of Google’s v1 TPU team recently founded Groq. A number of these chip design startups will be acquired both for IP and talent – particularly as the large platform companies embed AI and advanced services into the cloud (Azure, AWS, GCP) and as more consumer services take place in the cloud, at the edge of the network and on-device.
- FinTech and Information Services: Nothing new to report here other than each sector is fragmented and ripe with companies both large and small that enjoy recurring revenues and healthy EBITDA margins.