Yours truly received some pushback end of last year when I said that higher interest rates and a slowing economy would slow the pace of Tech M&A activity. The number of Tech M&A deals in November was down more than 47% year-over-year. Tech M&A volume has experienced double-digit percentage, year-over-year declines since February of this year.

• The easy money party is over. Strategic acquirers and PE firms have gorged on low-cost debt capital to fund acquisitions for over a decade. The cost of capital is significantly higher today versus a year ago, thereby driving target company valuations downward.
• Less visibility combined with a higher cost of capital hurts prospective deals. Prospective acquirers have significantly less confidence in target company sales pipelines. Less visibility combined with a higher cost of capital means lower valuations for prospective sellers (sort of like prospective sellers in the housing market). Sellers have yet to calibrate valuation expectations sufficiently downward. Thus, fewer deals are getting done.

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