Most tech M&A deals have stalled, but the info, data, and analytics sector is on the upswing
Though tech M&A has stalled, there's one area within the sector that's popping — information, data, and analytics, according to a report recently released by Solomon Partners.
It's not exactly the sexiest of sectors, but its importance has increased as economic uncertainty has grown, said Solomon Partners managing director Joe Watson. However, it's also a sector — as characterized by companies like Verisk (VRSK), Moody's, and Equifax — that has been on the upswing for some time.
"The information and data services sector is one that has become increasingly valuable over the last ten to fifteen years, as companies have realized it's necessary to get data to drive decision-making," Watson said. "The entire industry has developed and come increasingly into focus."
And, geopolitical and economic volatility has a way of crystallizing the importance of specialized data providers.
"Out of the financial crisis, the sector also saw a spike in interest," Watson told Yahoo Finance. "It's too early to say how much of it is tied to SVB, but we do know from history that times of crisis make businesses that provide data and information more important. After all, when do you most want information — when things are good or when they're bad?"
So the investment has followed. Despite a 14% decline in overall deal volume, information, data, and analytics M&A jumped from 16 transactions in the fourth quarter of last year to 35 transactions in the first quarter of 2023, the report states. The same is true of capital raises — there were 10 done by funds targeting the sector at the end of last year and 17 in Q1 of 2023.
These aren't earth-shattering deals, to be sure. But in a market where dealmaking is barely moving, it's notable.
For example, one of the deals that got done this quarter was financial services company Wilshire's creation of Wilshire Indexes, a separate entity and new data-focused venture with the Financial Times and Singapore Exchange.
'Are we headed into a recession?'
Tech dealmakers are trapped in a prisoner's dilemma of sorts. It's not that they don't have the dry powder, the problem is one of flow — as exits have been down, so has fundraising from LPs in the U.S.
"Sponsors are both keen to be buyers and will look to exit older investments," said Watson. "I think what's happening is in the current market uncertainty and interest rates, sponsors are asking a lot of questions, including 'Are we headed into a recession?' If you go and buy something, there's the concern that we could still be in a challenged market in six months."
Since dealmakers don't know where the macroeconomic environment will be in the near term, there's also a lot of fuzziness about what a successful deal even looks like right now.
"There's uncertainty around what good looks like, what bad looks like, and what average looks like," said Watson. "Once a few deals start to happen and once interest rates start to be certain, we'll see that inertia in the market start to loosen once interest rate uncertainty recedes."
So, the basic conditions are there for dealmaking to pick up in a major way — the question is when.
"For whatever reason, we haven't quite seen the dam break... If you look at the charts and data, it says there are theoretically the fundamentals in place for deals to come to market and get done, it's just a matter of when."
Allie Garfinkle is a Senior Tech Reporter at Yahoo Finance. Follow her on Twitter at @agarfinks and on LinkedIn.
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