M&A and Tech: 2024

“One business question I’ve been thinking about recently is how much we should be willing to pay to acquire mobile app companies like Instagram and Path that are building networks that are competitive with our own…They have millions of users, fast growth, a small team and no revenue…These entrepreneurs don’t want to sell, but at a high enough price-like $500M or $1B-they’d have to consider it…our own valuation is fairly aggressive right now,” Facebook CEO, Mark Zuckerberg, wrote on February, 27th, 2012 to his team prior to purchasing Instagram, which he bought for $1 billion.

It is common for companies to achieve a valuation using the same methodology Zuckerberg laid out when considering the purchase of Instagram. When it comes to innovative tech, it’s not only the company that needs you; it can also be the company that fears you that offers you the highest valuation. Companies like Facebook assess disruptions and valuations internally and methodologies can often seem like art rather than science.

Tech M&A outlook in 2024

What does the M&A market and tech look like in 2024? Despite higher interest rates, macroeconomic factors driving current trends are pent up activity from a lackluster 2023, the need for private equity investors to put $4T in cash to work, as well as 60 percent of CEOs who need to achieve growth objectives. Regarding industries, technology has been a leading force with innovations in Renewable Energy and the recent introduction of Artificial Intelligence (Global M&A industry trends: 2024 outlook | PwC).

Two Categories of Tech

Recent technology acquisition opportunities I’ve seen can be described in two categories: commercial services and innovative technology. Commercial service technology offers consulting in the implementation of Digital Transformation, Information Technology, and Cloud Migration consulting. Innovative technology can offer the potential to disrupt various industries with the implementation of Artificial Intelligence, Machine Learning, and Predictive Analytics.
The reason these two distinctions are important is because the nuances and adoption in various industries make commercial service companies ripe for traditional valuation methods used by private equity firms and strategic investors. On the other hand, innovative technologies are commonly valued based on forecasts, disruptive opportunities, rival elimination, and high growth potential.

How investors assess tech deals

When seeking investors for both commercial and innovative technology opportunities, Plethora Businesses’ Director of Marketing, Derek Kissinger, explained that Private Equity firms like would value ERP and SAP commercial technology consulting using methods standard for any other mature business model, where an EBITDA multiple would determine the value of this type of investment.