USA TRENDS AND DEVELOPMENTS Contributed by: George Casey, Heiko Schiwek, Elena Rubinov, Pierre-Emmanuel Perais, Clara Pang and Gregory Gewirtz, Linklaters LLP
make available certain US products, technolo- gies or other items to foreign entities. However, foreign interest in the US tech market remains strong, specifically among European and Asian tech acquirers and investors looking to acquire innovative US-based firms and tech- nology, while keeping in mind the longer deal times that may come into play with the height- ened regulatory scrutiny. Despite the regulatory challenges, non-US acquirors are frequently attracted to the size of the US market and the growth opportunities it presents. US cross-border tech M&A peaked in 2020 with momentum continuing in 2021, followed by a drop in 2022 and 2023 and a slow start in the beginning of 2024. Across regional flows of glob- al tech cross-border M&A, the USA remained the largest outbound investor in 2023 and account- ed for the majority of inbound tech M&A invest- ment into Europe and the Asia Pacific. In Q1 2024, US strategic and financial sponsor acquirors invested more than twice as much (by value and volume) into European companies than into APAC companies. Acquirors should keep in mind the expected 2025 implementation of a new outbound foreign investment regime in the USA that will either prohibit or require notifi- cation of US investments in certain Chinese enti- ties engaged in semiconductors and supercom- puting, quantum computing and/or AI. The draft regulations could be broader in scope as well, including affecting non-US investors in which US persons participate in making the investment decisions. Attractiveness of Small-Cap Companies 2024 saw some mild recovery in M&A activity compared to the previous two years, and there has been a slow but steady uptick in deal flow
since Q1 of 2024, albeit for smaller deal sizes when compared to what was seen in the last decade. According to Mergermarket’s M&A Highlights 1H 24 report, deal volume was up 33% year-over-year, to USD863.6 billion from USD647.5 billion in North America. While the volume of tech deals in the USA has generally increased over the past year, reflecting strategic acquisitions as well as private equity firms looking to capitalise on high-growth oppor- tunities, deal values have decreased as acquir- ers appear to be increasingly looking for deals in the middle market. Large players such as Microsoft and Google have been looking to snap up smaller companies and bring the expertise in-house. Economic uncertainty may have also reset the value of small tech start-ups overall, decreasing valuation gaps and leading to their becoming prime targets for acquisition. Large tech M&A deals may have also become discour- aged given the increase in regulatory oversight, leading to buyers considering multiple smaller acquisitions instead. At the same time, telecommunications compa- nies may still drive megadeals as players con- tinue to consolidate to reduce high infrastructure costs; however, the overall challenging regula- tory environment may continue to dampen the mega-cap tech companies’ enthusiasm for deal making. Shareholder Activism Activist investors targeted the technology sector in 2023; and, even with a slower start in 2024, the technology, media and telecommunications (TMT) sector remained a prime sector for activ- ists. According to FTI Consulting’s Activism Vulnerability Report, the TMT sector accounted for 52 campaigns in 1H24, a 33% increase from 1H23, which saw 39 campaigns. The TMT sector
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