Report: close to half the tech M&A deals in the US included a stock consideration in 2020, the highest percentage since 2016, versus only 27% in 2019
(Reuters) - Cash may be king, but stock is queen in the land of technology mergers and acquisitions during a pandemic-fueled tech boom.
Context & Ripple Effects
The 2020 shift to stock as deal currency lands mid-boom: Gartner counted a record 1,264 tech transactions in Q4 2020 alone (the quarter that beat the prior 2018 high), so acquirers were paying for record deal volume with their own shares nearly half the time. The last time stock consideration ran this hot was 2016, a year when tech firms also dominated private-equity buyouts (46% of US buyouts that year).
First-order effects
- Sellers in roughly half of 2020 US tech deals took acquirer equity instead of cash, swapping guaranteed proceeds for exposure to the buyer's share price at cycle-peak valuations.
- Acquiring companies preserved cash balances through the pandemic by paying with stock, effectively using inflated equity as the cheapest available currency.
Second-order effects
- Boards accepting paper consideration raise the bar on post-close performance — if acquirer shares fall from boom levels, deal value erodes and earnout-style disputes follow.
- A seller base holding more tech stock concentrates wealth in the sector's own equity, feeding back into demand for further tech acquisitions and liquidity events.
Third-order effects
- Deal structure now tracks the equity cycle: stock-heavy booms like 2020 set up repricing risk in downturns, while the pattern's persistence shows in tech M&A rebounding to lead all sectors again by 2024 ($534B in global tech deal activity).
- If stock remains the default currency at each valuation peak, tech consolidation becomes structurally levered to public-market sentiment rather than cash reserves — amplifying both boom-time deal counts and bust-time deal failures.
The trend: Tech M&A financing cycles with equity valuations, with acquirer stock displacing cash as the dominant deal currency whenever sector valuations peak.