Appetite for tech deals to return in 2023: EY

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New Delhi: Faced with high inflation, an energy crisis and falling consumer confidence, the biggest opportunity for tech companies in 2023 is to adopt an active mergers and acquisitions (M&A) strategy, as per the annual EY report. As valuations come down, the EY report predicts the appetite for tech deals is set to return in 2023.

Another EY study finds that 72% of tech CEO respondents plan to pursue M&A in the next 12 months, compared with 59% of CEO respondents across all industries. This supports, EY’s prediction that appetite for tech deals will return this year.

According to Nitin Bhatt, EY India Technology Sector Leader, the weakening economy in Europe and an impending slowdown in the US have led many commentators to sound the alarm bell regarding the future of the Indian tech sector.

“However, such calls are unwarranted. While the next few quarters might see muted expansion as customers tighten their purse strings, the Indian tech sector is on a multi-year growth cycle,” Bhatt commented on the Indian tech sector growth cycle.

“Global companies that have embarked on the path of digital transformation are unlikely to abort critical initiatives, and IT services companies will continue to partner with them on digitalisation and IT estate modernisation journeys,” Bhat pointed out how the partnership between global companies and IT services companies will continue.

The uncertain economy could trigger a conservative approach in terms of lowering IT spending and cost-cutting. “If the macroeconomic scenario worsens, one can expect further downward pressure on discretionary tech budgets and a re-prioritisation of spends towards cost take-out initiatives. Further, as valuations become attractive, we would likely see a greater interest in M&A transactions,” added Bhat.

Although the macroeconomic scenario may exert downward pressure on discretionary tech budgets and spending priorities. The tech sector is expected to accelerate sustainability and ESG initiatives.

“Finally, we expect the tech sector to double down on sustainability, both to accelerate their own ESG initiatives as well as to help their customers leverage technology to comply with new ESG regulations, including disclosures around emissions and climate change risks,” said Bhat.

Supply chain makeover
Improvements in the supply chain over the last few years have been thwarted by a decline in the political, economic and financial climate. In third place on this year’s ranking is the opportunity for tech businesses to reduce their dependency on geopolitically unstable geographies by doubling down on localisation. And tech executive respondents are on board, with 78% now planning to decouple their supply chain – including nearshoring and reshoring.

Retain top talent
The opportunity for businesses to build an agile talent strategy is in the ninth position in the ranking. Up until a few months ago, the biggest workforce challenge for tech businesses was “The Great Resignation.”

Driven by a re-alignment in work priorities during the COVID-19 pandemic, 56% of employee respondents in the sector indicated that they were considering leaving their current role in the pursuit of higher pay, better well-being programs and new career opportunities. Today, the sector is not only dealing with talent shortages to fuel long-term growth but also with hiring freezes and layoff rounds in response to economic uncertainty.

Sustainability reporting and edge computing
The report further predicts that environmental sustainability (fourth position in the ranking) will impact the tech sector in 2023 more so than in previous years, as companies adapt to comply with incoming regulations on disclosure around emissions and climate change risks. And a new entrant in the seventh position is the potential for edge computing to reach maturity in the next 12 months for those businesses that are willing to invest in new IT architectures.

The full list of top 10 opportunities in technology for 2023 are:

  1. Accelerate M&A strategy execution to strengthen the growth profile
  2. Experiment with platform ecosystems to disrupt the market
  3. Double down on localisation, even if it comes at a cost
  4. Prioritize environmental sustainability
  5. Introduce pay-as-you-go to attract complementary revenue streams
  6. Leverage analytics tools to optimise revenues
  7. Invest in edge ecosystem to improve operations and experiences
  8. Cyber, cyber, cyber … ensure data protection
  9. Drive an agile talent strategy to match resources with company need
  10. Prepare for global minimum tax reform

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