Union Square Advisors 2021 Outlook report
Union Square Advisors forecasts that 2021 will be a strong and successful year for technology deal making, given the sector’s proven resiliency and adaptability through the economic and social disruptions of 2020. The firm is optimistic that stable interest rates, bipartisan support for new rounds of stimulus, and the roll-out of COVID-19 vaccines will fuel an economic resurgence of a magnitude not seen since the end of World War II and will further strengthen the outlook for deal activity.
In addition to the firm’s broad industry outlook, the report addresses the following trends within technology, capital markets and financing:
- Technology M&A: The Comeback That Will Continue: Building on the momentum tech M&A had in late 2020, which saw a 29% increase in dollar volume year-over-year compared to 2019, Union Square Advisors believes the industry will continue to see strong activity in 2021. Barring significant geopolitical or macroeconomic setbacks, the global rollout of COVID-19 vaccines coupled with additional economic stimulus and infrastructure spending will set the stage for economic recovery – as well as accelerate M&A and financing activity, particularly in tech.
- The Digital Transformation Wave Continues to Disrupt: Traditionally “sleepy” middle and back office functions have been slower to embrace digital transformation but, because of the pandemic, that now is no longer the case. Union Square Advisors believes that areas such as accounting, payments, source-to-pay and risk management will continue to be red-hot segments within broader enterprise software as evidenced by valuation multiples of public traded entities and acquisitions.
- Accelerating the Adoption of Intelligence Engagement: Demographic shifts and new work-from-home routines will continue to alter how enterprises interact with their customers and employees in 2021 and beyond. Union Square Advisors forecasts that integrating intelligent software capabilities that help improve how businesses connect with these key stakeholders, or the adoption of the “platformization” of the entire customer experience, will be critical to maintaining a competitive edge for years to come.
- AdTech: An Evolving Ecosystem: The pandemic brought to light how fluid consumers’ days can be – wandering between platforms, programs and devices, all from home – and Union Square Advisors believes this shift in behavior will reverberate through 2021. The firm forecasts that advertisers and agencies will continue to use cutting edge AI-tools to provide more relevant advertising content – not only in display, but also in native and video formats.
- Embracing Cloud-Native Architecture: DevOps is now synonymous with agile software development, and the focus is now shifting to incorporating security even earlier in the development process. As security is more deeply integrated into the “Dev” part of DevOps, Union Square Advisors sees AI technologies becoming critical to the smooth functioning of “Ops.” The capabilities of AI will be essential to managing what would otherwise be overwhelming amounts of logged data.
- Recurring Revenue Lending: Underwriting to Growth: Union Square Advisors believes that recurring revenue lending will continue to be an attractive facet of the debt market in 2021, as lenders continue to show a greater appreciation for reliable, scalable, on-demand SaaS business models. Private equity firms continue to see the allure of SaaS platforms, highlighting that the attractiveness of investing in these businesses is not price, but the market for growth – making money through operational excellence vs. applying leverage is the play today.
- Pandemic Revelations for Capital Providers: 2020 led investors to have many “pandemic revelations,” such as the need to re-evaluate portfolio strategy as well as the quality of management and capital structure, all of which Union Square Advisors believes will influence M&A activity for capital providers this year and beyond.
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