Three trends defining the current deals landscape in tech, media and telecoms
1. New market opportunities lead to consolidation
The number of technology companies across the world has increased significantly on the back of market opportunities created by innovation combined with a favourable environment for raising capital. With competition intensifying, many companies with good funding are using mergers and acquisitions to rapidly scale their business in an effort to dominate the market.
2. Tech convergence follows tech disruption
Traditional industries such as healthcare, advertising, automotive and banking have been disrupted by new technologies including artificial intelligence, internet of things and cloud-based computing. This has resulted in tech convergence ‒ a situation where technology is embedded in the products and services provided by an industry, often giving rise to a new industry in itself. This way, these hybrid tech companies are able to infiltrate large markets such as global healthcare. As a result, the game is on to harness emerging technologies by way of mergers and acquisitions, either on the acquirer or target side.
Some of the technologies high on the agenda include crypto, healthtech, energy storage and the metaverse (a space encompassing artificial intelligence, virtual reality, augmented reality and connective hardware). Given that these technologies no longer appear in isolation, but increasingly impact different industries in hybrid form as part of complex ecosystems, technology has become one of the most highly-sought-after assets in the entire modern economy.
3. Capital investment is readily available and going global
This fertile ground merely requires watering in the form of funding. For a new generation of tech companies with lower-cost and more scalable business models, sources of capital are abundant and increasingly easy to attract. The Silicon Valley venture capital funding model, where companies are scaled ahead of initial public offerings, has also been adopted across the world. India, for instance, has seen the number of unicorns (privately held start-up companies valued at over USD 1 billion) mushroom, to the point where their total valuation in December 2021 was USD 260 billion. With this number of tech unicorns around and the IPO pipeline so strong, we’re going to see more M&A opportunities in 2022.
M&A trends in 2021
Technology, media and telecommunications deal volumes and values, 2019-2021
There was a record jump in M&A activity last year in TMT, especially in tech, although the second half was less lively than the first. Dealmaking was well above pre-pandemic levels. This momentum looks set to continue in 2022, driven by large amounts of available capital from corporates, private equity and special purpose acquisition companies combined with investor demand for content, crypto, digital assets and tech in general. On the other hand, rising interest rates, sustained high multiples and tighter regulation (particularly big tech players coming under closer scrutiny) are some of the factors that could slow activity and should therefore be monitored closely.
M&A developments in the Swiss TMT sector
Swiss TMT M&A activity presents a slightly different picture. While EMEA deal volume overall has declined since Q2’21, Swiss TMT deals volume saw another record quarter in Q4’21 with 38 transactions, exceeding the prior record number of 36 in Q1’21. On a year-over-year basis, Swiss TMT deal volume increased by a whopping 52% from 89 (2020) to 135 (2021).
The tech sector remains the key driver behind Swiss TMT deal activity. With 120 deals in 2021 – up from 67 in 2020 – tech nearly doubled its deal count and accounted for 89% of all 2021 TMT deals. Within the tech sector, the most dominant sub-industries were software (75% of total) and IT services (14%).
This high deal volume results from a combination of several factors:
- PE funds continue to be very active in the Swiss tech market, with more than 45% of the total tech deal count in H2’21. The acquisition of Swiss IT Security AG, a provider of IT security solutions, by Triton Investment Management, the divestment of Autoform Engineering GmbH, a software publisher focusing on the die making and sheet metal forming industries, to the Carlyle Group, as well as the acquisition of GS Swiss PCB AG, a manufacturer of highly miniaturised printed circuit boards, by AFINUM Management AG, are prime examples of this activity.
- Large Swiss corporates are looking to diversify their product/service portfolio while benefiting from strong underlying market growth. This was highlighted by the acquisition of UMB AG, a Cham-based IT service provider, by BKW Energie, and acquisitions of majority shares in Tresorit AG, a provider of end-to-end encrypted cloud services, and Dialog Verwaltungs-Data AG, by Swiss Post. 65% of the Swiss tech companies divested in 2021 were acquired by a non-TMT buyer, up 10ppt vs 2020.
- The Swiss tech market remains very attractive for foreign investors, including Indian-based Polygon Technology, which acquired Ethereum scaling solution Hermez Networks for USD 250m, New York-based web-recommendation platform Outbrain, which acquired the Zurich-based video intelligence AG, a developer of machine learning solutions, for USD 55m, or Salesforce’s acquisition of Lintao SA, a Geneva-based specialist in the design and creation of Tableau dashboards. Overall, foreign buyers were involved in 65% of the deals in the tech space, up 7ppt vs 2020.
“Everything points to continued lively dealmaking across the technology, media and telecommunications sector, although rising interest rates, sustained high multiples and tighter regulation are potential headwinds that should be kept an eye on.”
In conclusion: momentum set to continue as companies in all sectors seek to step up their tech capabilities
Global M&A activity looks set to increase in 2022. Closer to home, in Europe, the Middle East and Africa (EMEA), we expect dealmaking to be steady over the next six months as global firms, PE firms and companies with an abundance of capital continue to expand through acquisitions. Traditional industries face disruption and the pandemic is forcing quicker mainstream adoption of innovative technologies such as energy storage, healthtech, the metaverse and crypto. For this reason we can expect to see businesses use M&A to accelerate growth, gain scale and digitise.
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