Dealmakers say technology CEOs are pondering their dream deals after a record year for global tech M&A that saw mega-transactions in areas from chips to enterprise software.

Global volume for tech and internet mergers and acquisitions reached $470 billion in 2020, second only to the dot-com bubble of 2000, according to data compiled by Bloomberg. Inc.’s December announcement that it was buying Slack Technologies Inc. for $25 billion — the largest software deal of the year — could spur other companies to revisit their wish lists, advisers said.

“Just the visibility of that transaction, a large deal of people pursuing dream deals using their currency has resonated with others,” said Sam Britton, Goldman Sachs Group Inc.’s co-head of global technology, media and telecom. “I do think we’re going to see some similar things, maybe not of that size, but of people trying to capture their dream deals.”

Tech's Big Run
Potential buyers will be watching whether the market supports the stock of the acquirers doing deals. Salesforce shares have fallen about 14% since the Slack deal, wiping $32 billion off its market cap in what could be a cautionary tale.

Other buyers fared better with less sizable transactions. Twilio Inc. saw its shares gain $4 billion in market value in October when it announced a $3.2 billion all-stock deal for customer data company Segment.

Advisers expect enterprise technology companies with market values in the range of $20 billion to $100 billion to pursue acquisitions as they angle to overtake companies such as Adobe Inc. and Salesforce, once upstart software companies that are now valued at more than $200 billion. This class of the next big acquirers could include Twilio, ServiceNow Inc., Snowflake Inc., Zoom Video Communications Inc. and Okta Inc., industry bankers said.

More mature technology companies such as SAP SE and Oracle Corp., meanwhile, may be looking for transformative deals similar to International Business Machines Corp.’s 2019 purchase of Red Hat Inc.

IPO Lure
Big tech players must still persuade private companies to sell to them instead of going public in a strong IPO environment. The market welcomed stock debuts last year by Snowflake and Airbnb Inc. by doubling their share prices. DoorDash Inc. was rewarded with a first-day share pop of 86%.

The robust IPO market could add to M&A, especially with IPOs by blank-check companies still surging. Once public, special purpose acquisition companies, or SPACs, begin their hunt for merger targets.

“The strong IPO market doesn’t take away from M&A,” said Marco Caggiano, JPMorgan Chase & Co.’s co-head of North America M&A. “It actually spawns more SPACs, which in turn drive M&A volume.”

While the coronavirus pandemic has hurt many industries, it has shone a light on the tech space as so much of life goes virtual. CEOs got a front-row look at their IT systems during the pandemic, which could fuel IT spending for decades as companies adapt to new ways of working, said Jason Auerbach, global co-head of TMT at UBS Group AG.

“Whenever there are these kinds of shifts in tech spend, that drives M&A,” Auerbach said. “For many large-cap tech companies, if you want to continue to evolve and grow, M&A is going to continue to be the most efficient way to do it most of the time.”

Biden, Big Tech
With President Joe Biden’s administration still taking shape, executives will be watching for signs of how it will treat “Big Tech.” Advisers say it’s too early to know what the administration’s regulatory posture on tech deals will be.

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