Technology has been the most resilient sector through the COVID-19 crisis by some distance.

The Nasdaq Technology 100 stock market index gained more than 40 percent over the last 12 months, and tech giants Amazon, Facebook, Microsoft and Google‘s parent Alphabet have all delivered doubledigit revenue growth in 2020.

Total sector value reached US$338.6 billion, a 53 percent increase compared to 2019. The tech industry's strong underlying performance has supported dealmaking, especially at the upper end of the market, as listed technology firms found themselves not only flush with cash thanks to strong demand, but also with valuable shares to use in acquisitions. Low interest rates have also kept access to financing easy.

The higher valuations for tech companies, however, may have depressed dealmaking at the other end of the market. Higher revenues thanks to the pandemic have raised valuation expectations for owners considering an exit, but with so much still uncertain, potential bidders are reluctant to match those expectations.

While megadeals (worth more than US$5 billion) and large transactions (worth between US$1 billion and US$4.99 billion) rose year-on-year by both value and volume in 2020; the number of deals worth less than US$1 billion dropped compared to 2019, although value held steady.

Digital transformation acceleration

The largest tech deal of the year— and the second-largest overall— was a prime example of a company taking advantage of its valuation to make a strategic move. The US$35.6 billion transaction will see Advanced Micro Devices take over Xilinx in an all-stock deal.

The tie-up was the largest in a series of semiconductor deals this year, which also included the third-biggest tech deal of the year, Analog Devices‘ US$20.3 billion bid for Maxim Integrated Products. Both transactions are awaiting approval by shareholders and regulators.

Semiconductor firms are in stiff competition with one another in fast-growing areas like data centers, 5G and Internet-of-Things (IoT), and have in recent years used M&A to gain market share and achieve scale.

COVID-19 has only accelerated this trend, similar to the way it has accelerated digitalization across various sectors.

Another aspect of the pandemic's effect on technology is the way it has raised the importance of companies providing tools for working remotely. Among the largest deals of the year was a combination of two providers of services that have proved increasingly vital in the COVID age—customer relationship management (CRM) software developer Salesforce and workplace communications platform Slack. The US$25.6 billion deal is still pending shareholder and regulatory approvals.

Teladoc’s US$14.8 billion acquisition of Livongo Health, a digital health platform, is another example of growing digitalization. The deal is the largest digital health transaction on record, surpassing Amazon’s acquisition of PillPack and Google’s purchase of FitBit, and highlights the ongoing convergence between technology and healthcare, which has only accelerated through the course of the pandemic.

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