M&A a quiet tailwind for tech sector

THE technology sector continues to lead the market in terms of mergers and acquisitions (M&A) globally, as companies adapt to swiftly changing technologies and focus on enhancing their capabilities and market share to access new profit opportunities.

This is particularly relevant in the small and mid-cap segment, as these companies often attract acquisition interest from larger competitors. The size of what constitutes small and mid-cap in the technology market has grown significantly in the last decade, and comprises industry leaders within their segments.

These companies play a critical role in the technology value chain and have a strong influence in the broader technology ecosystem. They possess robust intellectual property (IP) and talent, and can either grow independently or be acquired by larger entities seeking access to their IP.

Over the years, we have seen multiple instances of acquisitions. Some notable examples include Microsoft’s acquisition of LinkedIn in 2016; Nvidia’s acquisition of Israeli semiconductor business Mellanox Technologies in 2019; and Microsoft’s purchase of Activision Blizzard in 2023. Cisco’s acquisition of cybersecurity leader Splunk in 2023/2024 is also a good example, where the former aimed to bolster its lagging security offerings through the acquisition.

Encouragingly, M&A activity has continued in 2025 despite the challenging market environment, marked by geopolitical and regulatory uncertainties. We are observing a variety of acquisition proposals across industries such as food delivery, semiconductors and software, as overall industry structures evolve. We think this trend could continue to bolster the tech sector’s returns over the long term.

For example, industry consolidation and rationalisation continue to accelerate within the food delivery space, as fierce competition drives leading players to compete for scale and market position, while seeking to enter new regions through strategic acquisitions.

We have seen two major deals this year, with JustEat Takeaway and Deliveroo getting acquired by Prosus and DoorDash, respectively. Prosus aims to broaden its presence in the UK and Europe through JustEat, while DoorDash’s acquisition of Deliveroo offers immediate access to nine new markets, including the UK, France, and the United Arab Emirates, where it currently has a limited presence.

On the semiconductor front, companies are looking to make strategic IP acquisitions. For example, US chip-maker Qualcomm acquired UK-based Alphawave, a leader in high-speed connectivity IP, which is predominantly utilised in connectivity solutions for data servers and storage. Qualcomm intends to diversify its operations beyond smartphone chips and into artificial intelligence (AI) data centres and plans to leverage Alphawave’s high-speed IP in its business diversification strategy.

Attractive acquisition targets

We also expect software companies to continue to be attractive acquisition targets. Leading cloud-based customer relationship management platform Salesforce acquired Informatica. The former aims to pivot towards data-related software following the recent success of its data cloud products. Informatica specialises in data integration, data management and data enhancement products, primarily for data analytics and reporting for enterprise customers.

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Salesforce’s acquisition of Informatica will enhance its data cloud offerings by providing access to data housed in various enterprise systems, ultimately boosting its AI capabilities.

Looking ahead, we expect M&A activity to remain an integral feature within the technology sector, as companies seek to strengthen their strategic positioning amid improving industry structures, rapid innovation and evolving competitive needs.

While this should not be a core driver of investment decisions, such developments can serve as a meaningful source of upside for long-term investors.

It is still important to focus on identifying long-term winners, such as those with strong businesses and solid fundamentals. Many of these within the mid and small-cap segment are also attractive acquisition targets, offering an additional lever for value creation.

The writer is portfolio manager, Fidelity International