According to a 2024 outlook report from Union Square Advisors, a technology-focused investment bank, factors like the banking crisis, high inflation, rising interest rates, elevated commodity prices and geopolitical issues significantly affected deal activity in 2023. However, in the second half of the year, the firms says there was a meaningful increase in the number of technology companies making the decision to raise capital or pursue a strategic transaction, fueling its optimism that dealmaking will increase this year, with the company specifically noting that there is significant capital on the sidelines available to be deployed.

“We view the recent gradual improvement of deal activity as a positive sign,” Carter McClelland, chairman and co-founder of Union Square Advisors, said. “We’ve seen the tech markets recover fairly quickly after previous financial downturns, and we remain optimistic that we will see a considerable uptick in transaction activity this year as well.”

“We already are seeing strong activity in several technology sub-sectors, from health tech to risk management to software for various vertical markets, all infused with next-gen artificial intelligence,” Ted Smith, president and co-founder of Union Square Advisors, said. “We believe this activity signals a stronger, more dynamic year ahead, and we look forward to helping executives and investors evaluate and navigate their various options to deliver on their strategic priorities.”

Union Square Advisors’ report details predictions and trends in M&A, private markets and subsectors within technology, with focus areas including:

• Tech M&A activity with strategics and private equity will continue to improve. Union Square Advisors expects that strategic buyers who are experiencing a rebound in their stock prices will pursue transactions with the expectation of further market recovery while also continuing to divest underperforming/non-core assets. Venture capital and private equity firms will increasingly elect to move their portfolio companies to exits due to funding needs, pressure to return capital and improving business fundamentals. Despite this positive movement, many transactions will still be challenging to complete, given new norms for extensive diligence and a more expensive financing environment. Whilegenerative AI went mainstream in 2023, a slowdown in deal activity suggests the initial investor frenzy for the space may be tempering.
• Private credit continues to take share as borrowers and private equity firms seek alternatives to the broadly syndicated markets. While defaults are projected to peak in 2024, Union Square Advisors predicts that private credit market participants will take solace in tighter covenants and stronger documentation/terms. Tech equity markets will feature limited IPOs, while private markets will be more active as private equity firms seek creative ways to return dollars to LPs and bolster their ability to raise new funds. Union Square Advisors believes private equity capital remains the crucial financing source — and the best liquidity option — for companies across the technology sector.
• The digital future of behavioral health is promising, with Union Square Advisors forecasting a strong outlook for M&A in the space as market conditions are ripe for the next wave of digital health consolidation. Other trends in health technology to watch include life sciences opportunities, with current market conditions suggesting positive sentiment toward pharma IT in 2024.
• Governance, Risk and Compliance (GRC) technology providers are evolving to focus on multifaceted solutions that underpin the strategic resilience of modern organizations. Sectors increasingly intertwined with GRC includeESG and comprehensive supply chain solutions, with the latter, in particular, attracting meaningful investment in the wake of significant pandemic-driven supply chain challenges.
• Subsectors like customer engagement and industrial and construction applicationsare unleashing the power of digitization to enhance near-term performance and build long-term resilience, with the expectation for increased deal flow to come.