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Technology executives temper their economic optimism

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Technology executives temper their economic optimism

84% of technology executives surveyed expect global economic stability or modest growth in 2016.

Global technology dealmaking is marked by the twin forces of digital disruption and a prolonged low-growth economy, according to a study by professional firm EY. While 84% of technology executives see a stable or modestly improving global economy, only 1% are projecting strong economic improvement, compared to 39% six months ago.

Technology sector confidence in dealmaking is moderate, with 43% of those surveyed expecting M&A activity to continue at a stable level this year. Only 52% see growth in this area, a noticeable decline compared with 80% of respondents who projected growth in the previous CCB report, published six months ago.

The sector is seeing a growing trend toward sharing economy business models.

Jeff Liu, EY's Global Technology Industry Leader, Transaction Advisory Services, commented on the report.

"Technology executives have generally accepted that global economic growth is unlikely to accelerate in the near term and most businesses are revising their strategies accordingly. Low-growth prospects are adding impetus to new kinds of technology alliances, beyond classic M&A and joint ventures, reflecting the need to do more with less to innovate and grow in sluggish times."

With cost reduction and regulatory oversight at the top of boardroom agendas (both at 41%), the sector is seeing a growing trend toward sharing economy business models and what EY terms "industrial mash-ups." This is a new form of dynamic and increasingly automated alliance-building that brings sharing economy benefits to the business-to-business (B2B) market. In fact, 40% of technology executives are planning alliances to create value from currently underutilized assets.

Despite lower M&A expectations, there is no current sign of a downturn in the technology sector. Technology M&A volume rose 2% year-over-year in the first quarter of 2016 to 1,002 deals, even after record-setting levels in 2015. Quarterly value fell 14% YOY, but still ranked among the top 10 highest-value quarters ever.

Liu says: "Dealmaking will certainly continue to reshape the technology industry. While deal pipelines remain robust, diminishing perceptions of the quality and closability of M&A deals means the route to new types of dealmaking is opening up. Going forward, expect to see technology executives pursue growth more dynamically via alliances and mash-ups, as well as structurally through M&A."

 

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