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The perfect storm of digitalisation, disruption and abundant capital: rich prospects for M&A in technology, media and telecommunications

Vincent Lüscher Director, Deals Technology, Media & Telecommunications, PwC Switzerland 21 Sep 2021

The first six months of 2021 saw record-high M&A activity in the technology, media and telecommunications space fuelled by abundant supplies of capital, initial public offerings of special purpose acquisition companies (SPACs) and venture capital funding. The M&A landscape is defined by three fascinating trends: media streaming services resorting to acquisitions to reanimate growth; growing venture capital interest in software as a service (SAAS) and deep tech such as quantum computing, space exploration and energy storage; and a shift from globalisation to increased sovereignty and protectionism that could pose challenges for cross-border transactions. Despite the obstacles, M&A activity looks set to remain very lively as companies continue to do deals to build new capabilities, reshape their businesses and maintain or attain market leadership. Those are some of the main global findings of PwC’s recently published M&A insights. What’s the story in Switzerland?

Three key themes driving global M&A activity in tech, media and telecoms

1. Industry boundaries everywhere are converging with tech

Traditional industry boundaries are converging as technology takes centre stage in all industries – which is creating M&A opportunities. People’s way of life is being changed by new entrants and tech disruptions, which are redefining business models in emerging areas such as healthtech, fintech and cleantech. It’s not only industry boundaries that are converging – multiple technologies are converging too.

Established industries are being disrupted by new players blending new tech with old offerings: think Tesla, Lucid Motors and Nio in the auto sector, Amazon and Alibaba in retail, and Robinhood and SoFi in financial services. And we expect to see more tech innovators emerging to disrupt other sectors, leading to more deals as large corporations seek to acquire or enhance existing capabilities.

2. Significant investment needed by telecom companies in infrastructure and 5G technology

We’re seeing telecom companies abandoning non-traditional investments such as media and consolidating their portfolios to free up cash to invest in 5G, while others merge to create scale in preparation for fierce competition. This dealmaking looks set to continue as the telecom industry uses growing cash flows and scale to step up investment in its core businesses. While each company will have its own strategy, they’re likely to focus on becoming more vertical by expanding their infrastructure and technology.

3. Record capital supply and investments triggered by SPACs, IPOs and VC funding

Since 2020 there has been sustained growth in the number and value of IPOs by special purpose acquisition companies, and SPACs are set to continue to impact M&A in the coming months – including divestiture-to-SPAC transactions. The IPO market has also been re-energised, and is now back to pre-pandemic levels as unicorn companies finally stage public offerings delayed by COVID-19. We’re also seeing an increase in venture capital investment, which will likely result in M&A in the coming years as the result of VC exit strategies.

Global Technology, Media & Entertainment and Telecommunications Deal Volumes and Values

Bar chart showing M&A volumes and values globally for the Technology, Media & Entertainment and Telecommunications industry. Deal volumes and values in the technology and telecommunications sectors increased during 2020 fuelled by the demand for digital and technology-enabled solutions. A number of megadeals in the semiconductor space boosted deal values in the second half of 2020. 2021 deal volumes and values are well above pre-pandemic levels.

Source: Refinitiv, Dealogic and PwC analysis

Adjusted for megadeals, deal volumes and values in EMEA remain very high. Interest from investors and the amount of capital held in tech-focused SPACs is growing in the EMEA region. Private funding in technology continues to grow, and software deals in fintech and adtech continue to fuel M&A activity. Telecoms are still shedding non-core businesses to finance investment in 5G, while media companies are consolidating to amass larger portfolios of content ahead of international streaming.

M&A developments in the Swiss TMT sector

The Swiss TMT sector largely follows the global and EMEA trends. The historically high TMT deal volume observed in 4Q20 (35 acquisitions of Swiss TMT companies) declined slightly in 1Q21 and 2Q21 with 33 and 27 transactions respectively. This is mainly explained by the significant catch-up effect in 4Q20 for deals which were delayed during the first few months of the COVID-19 pandemic. Nevertheless, the Swiss TMT M&A market remains very hot, driven by the tech sector, and more particularly software publishers, which represented more than two-thirds of the deal volume in 1H21.

Swiss Technology Media & Telecommunications Deal Volumes

This does not come as a surprise, since many software publishers achieved record years in FY20, strongly benefiting from surging demand to make businesses more digital and flexible in an increasingly remote working environment. This makes them attractive investment options, albeit at higher valuations.

The two largest Swiss TMT deals with published deal values in the first half of FY21 are prime examples illustrating this trend. In the first one, an investor group comprising Goldman Sachs and CVC Capital Partners acquired a minority stake in Acronis, a Swiss software publisher specialising in continuous data protection, patch management and anti-malware protection — all of which have become even more burning topics during the COVID-19 pandemic.

In the second transaction, Permira acquired a minority stake in Nexthink, a software publisher specialising in digital employee experience (DEX) management, another speciality field which has grown significantly in importance over the last 18 months as most interactions between employees and their companies have become digital.

We expect the high-level of deal activity in the tech/software sector to continue in the second half of FY21 and early FY22 as the race for attractive TMT assets carries on.

Looking at the buyers, private equity firms had their busiest six months globally since deal activity started being monitored over 40 years ago. This trend was visible in Switzerland, particularly in the TMT sector. With interest rates expected to remain low and ample capital available, PE buyers continue to target the TMT sector and represent close to 50% of the deals in this space, which is significantly above their historical share in the Swiss TMT market. Here as well we expect this trend to carry on into FY22 as more fast-growing tech companies come to market.

Corporate vs. Private Equity Buyers in the Swiss TMT Market

“There will be plenty of deals opportunities in TMT going forward, but the winners will have to be bold and clear about how they intend to create value.”

Vincent Luescher, Director, Deals Technology, Media & Telecommunications

In conclusion: stage set for continued robust M&A in technology, media and telecommunications

Digitalisation and new industry disruptions, coupled with record-high levels of capital and investment triggered by IPOs and SPACs, have set the stage for continued robust M&A activity this year. This means we’re optimistic when it comes to M&A value creation. But succeeding in such a fast-paced arena will require boldness and a strong value creation mindset.  

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Vincent Lüscher

Vincent Lüscher

Director, Deals Technology, Media & Telecommunications, PwC Switzerland

Tel: +41 58 792 1483