Analysis of M&A activity across industries has demonstrated that companies we refer to as “mountain climbers”—that is, those that engage in repeated and material M&A—outperform their less-active counterparts regardless of the economic cycle. In the tech industry, mountain climbers achieve an average 15.7% annual total shareholder return compared with an average of 12.7% for all companies studied.

Let’s look at what’s swiftly unfolding. Month by month, assets are becoming more affordable, with tech valuations for public assets sinking across the board. High-growth companies have been hit the hardest, with an average 70% decline in valuations from November 2021 to October###-###-#### see Figure 1). This makes it more of a buyer's market for tech companies; they have more cash at a time when there’s an abundance of attractive growth assets from which to choose. Meanwhile, competition from private equity (PE), which had gained momentum steadily over the past decade, has dropped, with PE firms representing only 38% of deal value during the first nine months of 2022, down from 43% during the same period of###-###-#### At the same time, the IPO market has frozen, special purpose acquisition companies have all but disappeared, and growth equity has slowed—all of which limits a target’s ability to raise money and favors strategic acquisitions.