Technology industry dealmakers are less optimistic about M&A work than they were back in April, according to a new Morrison & Foerster survey.

In the semi-annual Tech M&A Leaders' Survey, made public this week, only 43 percent of respondents said they expect to see more activity over the next year—a drop from the 66 percent who six months ago said they expected to see an increase.

The report found that 41 percent of survey respondents expect tech M&A to stabilize in the near future, and 16 percent expect to see a decline.

The “less bullish outlook” isn't surprising, according to the report, because the market is closing in on a new record.

“The market is still very strong, especially when you take into account that the tech industry is on track to finish near, if not over, the highest deal value we've seen since the dotcom crash,” said Eric McCrath, co-chair of Morrison & Foerster's corporate department, in a statement accompanying the report.

The value of tech companies that changed hands through the first quarter of the year was $425 billion, according to 451 Research, a company that provides IT industry research and analysis. At that rate, the total value of deals in 2018 could exceed the previous record, reached in 2015, of $575 billion.

The volume of tech M&A activity in recent years has set a high bar, which explains in part why dealmakers expect a change in the deal cycle, McCrath said.

The M&A Leaders' Survey, conducted by Morrison & Foerster and 451 Research, includes responses from 151 individuals—40 percent investment bankers and 38 percent C-level or M&A executives. Others are lawyers, venture capitalists, private equity professionals and others doing M&A work. About 85 of the respondents are from the United States, including 39 percent from the Silicon Valley.

More than half (54 percent) of survey respondents said they expect scrutiny from the Committee on Foreign Investment in the United States (CFIUS), as well as trade disputes, to put a damper on tech M&A over the next year. But just 34 percent expect antitrust issues to negatively impact M&A activity—presumably because the Trump administration, which did not block AT&T's acquisition of Time Warner, is seen as less focused on antitrust matters.

The results of the survey were almost split in the view of M&A valuations, with 32 percent of respondents expecting a decrease in private company M&A valuations over the next year, while 30 percent forecast an increase.

A total of 79 percent of the respondents expect to see an increase in sales of private equity portfolio companies to strategic acquirers—a trend Morrison & Foerster said is bearing out,  with 15 such purchases so far this year compared to 2017.

The survey suggests that buyers have a continued interest in companies in the machine-learning business, with 62 percent of respondents saying machine learning has been a bigger driver of M&A this year than in the past. On the flip side, 19 percent of the respondents found that cryptocurrency was the most “over-hyped technology” over the last 20 years.

The respondents note that in addition to M&A, tech companies benefit from a strong initial public offering market, and they predicted that 20 tech companies will go public over the next year.

Further Reading: