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Despite an uncertain economic and geopolitical climate, a number of leading dealmakers in the Silicon Valley are predicting mergers and acquisitions in the tech space to continue at a steady pace in the year ahead, fueled by a growing appetite among non-tech buyers and private equity firms.

Recent reports by corporate lawyers at Morrison & Foerster, Hogan Lovells and White & Case said the trends that emerged in 2018 will likely continue to show through in tech M&A activity in 2019. Although their takeaways vary somewhat, they seem to agree that increased investments from non-tech companies and private equity firm have boosted dealmaking activity.

“The proportion of U.S. tech M&A deals done by non-tech buyers has increased steadily over the past 15 plus years,” said Hogan Lovells corporate partner Rick Climan, a veteran tech M&A lawyer in Silicon Valley.

Climan said his firm collaborated with Citigroup in a survey that found non-tech buyers participated in 33 percent of North American tech M&A that took place from 2016 to 2018. That's up from just 15 percent of deals that happened from 2001 to 2003.

“Today, in about one out of every three U.S. tech M&A deals, the buyer was a non-tech company,” Climan said. He noted that the non-tech buyers come from a variety of sectors, including the consumer, automotive, health care and media industries.

As technology becomes increasingly important for all businesses, Climan said he expects to see more e-commerce deals like Walmart's $16 billion acquisition of Flipkart, a deal he worked on, which the retailer announced in May.

“If you are a tech company, ultimately [there's a decent chance] you are going to be sold to non-tech buyers,” he said. “For the technology company in the process of being sold, dealing with a non-tech buyer—dealing with an old-economy buyer—can create a lot of challenges, including culture challenges.”

So M&A attorneys advising non-tech clients acquiring tech companies should be familiar with tech sector norms and work with their colleagues from well-versed backgrounds to advise on the unique issues that can arise in the process, Climan added.

Climan said there has also been a boom of private equity firms making investments in tech M&A.

“It used to be 25 years ago, the technology sector was a cowboy country, companies not only didn't have stable earnings—they didn't even have stable revenues. They were not very good candidates to service debt,” said Climan. “Now you have software companies with these very stable maintenance revenue streams that start to look, at least in their financial profile, a little bit like the old-economy companies.”

With a stock market correction on the rise, Climan said he expects to see more buyers “jump into the fray” to acquire companies at a relatively low price. Private equity firms could be especially active in downturns since their business models typically prefer lower-priced assets.

As a result, “In the longer term, I don't see a slowing down of tech M&A activity,” he said.

Michael O'Bryan, a corporate partner at Morrison & Foerster, generally agreed with Climan's takeaways in his own firm's recent report on tech M&A trends for 2019.

While the number of global deals dropped slightly from 2017 to 2018, tech M&A has continued at a steady pace, reaching $574 billion in deal value globally last year, according to the Morrison & Foerster report.

Citing the statistics from 451 Research's M&A Knowledgebase, the MoFo report said private equity contributed a quarter of the $574 billion spent in tech M&A last year. Non-tech buyers, while still in the minority, are continuing to take an interest in the market in recent years—they spent more than $40 billion on tech M&A in each of the last three years, according to the report.

“A lot of the drivers are still there. You've got the need, the desire to grow, the desire to make stronger business,” said O'Bryan, anticipating that the two trends are unlikely to slow down in 2019.

“You got private equity firms that are interested in doing tech M&A, you got strategic companies that continue to be interested and need to do it, and you got money available in terms of the credit market,” he said.

White & Case attorneys William Choe and Jason Rabbitt-Tomita said the market data in their research also indicates that private equity firms and non-tech companies have been getting more involved in the tech space.

“I think many companies believe and understand that in order to grow their businesses and do [so] in a high-margin fashion … they really need build out that tech-heavy focus,” said Choe, who serves as White & Case's global head of tech M&A.

“They are competing with tech companies for the purpose of market share,” Rabbitt-Tomita added. The non-tech companies' growing interest in buying tech companies, he said, is “largely borne out of necessity to be competitive with those who have adopted technology as a base for revenue growth and market share growth.”

White & Case, alongside Mergermarket, asked 150 tech executives around the world about their expectations for cross-border tech M&A over the next two years. According to their survey, 62 percent of the executives said they expect to do additional cross-border technology acquisitions in the next few years.

Despite their optimism, the survey pointed out that almost half of respondents, 44 percent, indicated that they had walked away from potential cross-border deals in the past. And 57 percent of this group said they had walked away from deals due to changes in the macroeconomic environment.

Looking at the tech M&A landscape as a whole, “2019 might be a continuum from 2018,” Choe said.

However, given a number of unsettling factors, such as the increasing political tensions and evolving trade policy, Choe said he would proceed with a little more caution, rather than acting on pure optimism.

“Right now at the beginning of the new year, you have two or three additional barriers you look at in terms of deal-making,” said Choe. “I think it's just easier and safer to talk about it possibly being a down year.”