1. In 2016, the number of cross-border tech deals rose to 787, reaching a post-financial crisis record. Total deal value also hit a post-crisis high at US$187.7bn
  2. Tech transactions dropped 0.7% in volume and 17% in value in H1 2017, compared to the first half of last year
  3. Besides H1 2016, the number of cross-border tech deals was higher in H1 2017 than in any post-crisis half-year period
  4. Since the beginning of 2016 through the midpoint of 2017, the US has the most acquisitive and most targeted country in the tech sector

From "America First" to Brexit and China's economic slowdown, political instability has become the new normal. Despite this, cross-border M&A in the technology sector remained robust in 2016, hitting post-financial crisis highs in deal volume and value. 

Although dealmaking slowed in H1 2017, the drop was less pronounced than experts predicted, bolstered by rising corporate cash levels, lower asset prices and global innovation. In fact, the second half of this year appears primed for more large-scale technology transactions given the combined US$500bn in cash that the top five US tech giants have amassed, according to Moody's. 

"Many companies are sitting on significant cash piles" says Charles Whitefoord, an M&A partner in Baker McKenzie's London office.

"Technology companies need to deploy that money or return it to shareholders, and in some instances, there may be significant costs in trying to do that."

Currency fluctuations amid political uncertainty caused by events like Brexit have also made tech acquisitions more attractive. 

“For US buyers, large parts of the world have become much cheaper,” Whitefoord says. “If you were considering making an acquisition in the UK in late 2016 versus early 2016, you were getting a close to 20% discount.”

Given the rapid pace of technological advancement, three trends will continue to drive technology deals in the coming months and beyond: convergence, customer-centric M&A and the hunt for talent.

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In the past five years, new sectors such as autotech and consumer-tech have moved rapidly from the fringes into the mainstream. These hybrid sectors represent the growing convergence of traditional industries such as automotive and consumer with technology subsectors such as e-commerce and artificial intelligence. For example, Amazon entered the retail food market in June with its US$13.7bn purchase of grocery chain Whole Foods.

“The convergence of sectors and businesses will continue to drive deals,” says Howard Wu, an M&A partner in Baker McKenzie's Shanghai office. “Fintech and healthtech are the most popular, but now any sector can have tech attached to it.” 

The battle for market dominance among more traditional enterprises and the big five technology firms could lead to a raft of megadeals. 

“There will definitely be more moonshots given the cash the major technology players have,” says Matthew Gemello, an M&A partner in Baker McKenzie's Palo Alto office. 

“It wouldn’t be surprising if another major technology player buys into an industry that is not on anyone's radar screen.”

In certain markets, the hybrid model is still in its infancy, which could create opportunities for more adventurous businesses in regions like Latin America. 

“In Brazil, fintech is quite advanced, but healthtech has not developed yet,” says Alexandre Pinto, an M&A partner at Trench, Rossi e Watanabe Advogados, a Brazilian firm in cooperation with Baker McKenzie. 

“There’s a real opportunity there, especially because the Brazilian public health system is not particularly strong.”

Customer-centric M&A
This convergence trend is closely tied with corporate desires to get closer to their customers, both consumers and other businesses. In the business-to-business context, this trend has been driven by conventional industrial companies such as heavy goods manufacturers buying software and data analysis firms that enable them to cut through the supply chain and position themselves closer to customers. 

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The hunt for talent

Building the technology platforms and running the applications that will bring companies closer to target customers requires a crucial ingredient: talent. In the technology world, this comes at a premium. The practice of "acqui-hiring," buying a company for the people rather than the products, may not be as prevalent as it was five years ago, but it's still one of the biggest deal drivers in the technology sector.

“Many companies are buying the people, the relationships and the networks to be able to deploy the product or service,” Wu says.

Few companies will describe their approach as acqui-hiring, but the practice continues in Silicon Valley and beyond. However, this trend could slow if the Trump administration passes the protectionist policies that he espoused during his campaign. This could lead to more companies setting up talent centers outside the US.

“The initial messaging from the new administration regarding the hiring of highly skilled foreign workers is causing clients to rethink their deal strategies,” Gemello says. “Increasingly, protectionist immigration policies, if translated into law, would impact highly skilled foreign workers in the technology space more directly than in other industries.”

Continued political uncertainty could unsettle executives as the valuation gap between buyers and sellers grows with the rising demand for quality start-ups. However, the triumvirate of corporate cash, convergence and customer-centricity are powerful forces likely to overshadow even the toughest of challenges in the burgeoning cross-border M&A technology market.

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Super sectors

Within the tech industry, the rapid growth of certain innovations is fueling M&A investment in a growing number of subsectors, including:

Artificial intelligence: AI investment will rise by more than 300% from 2016 to 2017, according to research firm Forrester. This level of investment will spur even more M&A activity in this sphere, along with disruption, across a growing number of industries. "That’s where we’re really seeing activity,” Gemello says.

Cloud computing: Worldwide spending on public cloud computing will double by 2020, rising from US$82bn currently to US$162bn, according to a recent IDC report. Meanwhile, the global cloud services market is estimated to grow from US$247bn this year to US$383bn in 2020, according to technology research group Gartner. All of this growth will continue to drive M&A activity.

Cybersecurity: Petya, SamSam and WannaCry may sound innocent enough, but they are actually forms of malware that are driving companies to distraction, and could kick off a wave of cybersecurity M&A. The average cost of a data breach to a large company was US$3.8m in 2015, according to the Ponemon Institute. “There is definitely the potential for a lot of dealmaking in the cybersecurity space because it's top of mind for the C-suite,” Wu says.

Big data: Meanwhile, big data continues to be hot property as large companies increasingly scoop up targets sitting on significant amounts of high-quality information that can be analyzed to reveal insights into customer and business behaviors.