EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.
How EY can help
Why it’s the 2023 M&A sector of the year
AI helping to spur transformation: Enthusiasm for GenAI as the next major tech platform is at an all-time high, driven by the opportunity to revolutionize productivity, expand product offerings and unlock new markets. Per the October EY CEO Outlook Survey, 87% of global tech CEOs have hired new talent with relevant AI skills or are in the process of doing so. This prominence has resulted in higher M&A multiples compared with traditional segments within the tech industry.
PE firms starting to increase investment: The gap in valuation is closing, driven by the necessity for sellers to raise capital and the mounting pressure on private equity to deploy their resources and show their investors cash returns. In fact, tech deal multiples sunk to 7.8x EV/EBITDA in the first quarter of 2023. While that has since risen to 17.5x in the third quarter, that is still below the highs seen in 2021 and 2022. This, in turn, will sustain the trend of take-private transactions in which PE can take a hard look at cost drivers and refocus products and roadmaps.
Cybersecurity continues as a major priority: Safeguarding data has become more complex as attack surfaces grow, mainly because of hybrid work environments and the explosive adoption of GenAI. As a result, cybersecurity remains top of mind for executives and a high priority for IT budgets. Cybersecurity companies continue to acquire new and emerging businesses to maintain share. However, we may see a near-term slowdown in cybersecurity deals as a large percentage of deals involves companies based in Israel or have significant operations there.