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Appetite for tech deals will return in 2023, despite adverse conditions

EY report predicts appetite for tech deals will return in 2023, despite adverse conditions

  • Deals strategy tops 2023 opportunities ranking for technology businesses

  • Going local: 78% of tech companies now plan to decouple the supply chain

  • Pressure rises to retain best talent as workforce disruption intensifies

Faced with high inflation, an energy crisis and falling consumer confidence, the biggest opportunity for tech companies in 2023 is to adopt an active mergers and acquisitions (M&A) strategy – according to an annual EY report, Top 10 opportunities for technology companies in 2023. As valuations come down, the appetite for deals is set to return next year. This is supported by a recent EY study,1 which finds that 72% of tech CEO respondents plan to pursue M&A in the next 12 months, compared with 59% of CEO respondents across all industries.

Olivier Wolf, EY Global TMT Strategy and Transactions Leader, says:

“The deal market has slowed due to macro headwinds and financial volatility, but this has improved opportunities for corporate buyers with strong balance sheets. In turn, competition for targets should heat up again next year, as hundreds of billions of private equity dollars come to the market. Transformative acquisitions could launch tech companies into new markets or adjacent verticals like HealthTech, and accretive acquisitions have the potential to strengthen portfolios with leading-edge technologies like artificial intelligence.”

Supply chain makeover

Improvements in the supply chain over the last few years have been thwarted by a decline in the political, economic and financial climate. In third place on this year’s ranking is the opportunity for tech businesses to reduce their dependency on geopolitically unstable geographies by doubling-down on localization. And tech executive respondents are on board, with 78% now planning to decouple their supply chain – including nearshoring and reshoring.2

Ken Englund, EY Americas TMT Leader, says:

“Last year’s efforts to build redundancies into the supply chain will not be sufficient to address the structural risks brought by geopolitical conflict and natural disasters. The sector now needs to spread its industrial footprint across multiple geographies, which will require large investments. Companies will be supported by regulation and sponsorship from governments, and those who are not deterred by the inevitable cost increases will ultimately be rewarded.”

Retain top talent

The opportunity for businesses to build an agile talent strategy is at ninth position on the ranking. Up until a few months ago, the biggest workforce challenge for tech businesses was “The Great Resignation.” Driven by a re-alignment in work priorities during the COVID-19 pandemic, 56% of employee respondents in the sector indicated that they were considering leaving their current role in the pursuit of higher pay, better wellbeing programs and new career opportunities.3 Today, the sector is not only dealing with talent shortages to fuel long-term growth, but also with hiring freezes and layoff rounds in response to economic uncertainty.

Susan Robinson, EY Global TMT People Advisory Services Leader, says:

“In this complex landscape, businesses must balance the workforce by taking steps to retain the highest performers, redefine hybrid work experiences, cultivate diverse teams and an inclusive culture, and address emerging employee concerns. This includes adopting attractive packages that take into account rewards and wellbeing, and redesigning career frameworks to support internal mobility between different roles within the business.”

Sustainability reporting and edge computing

The report further predicts that environmental sustainability (fourth position in the ranking) will impact the tech sector in 2023 more so than in previous years, as companies adapt to comply with incoming regulation on disclosure around emissions and climate change risks. And a new entrant in seventh position is the potential for edge computing to reach maturity in the next 12 months for those businesses that are willing to invest in new IT architectures.

The full list of top 10 opportunities in technology for 2023 are:

  1. Accelerate M&A strategy execution to strengthen growth profile

  2. Experiment with platform ecosystems to disrupt the market

  3. Doule-down on localization, even if it comes at a cost

  4. Prioritize environmental sustainability

  5. Introduce pay as you go to attract complementary revenue streams

  6. Leverage analytics tools to optimize revenues

  7. Invest in edge ecosystem to improve operations and experiences

  8. Cyber, cyber, cyber … ensure data protection

  9. Drive an agile talent strategy to match resources with company need

  10. Prepare for global minimum tax reform

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