After a much slower first six months, dealmaking in the technology, media and telecommunications space rebounded with a vengeance in the second half of 2020 – both globally and in the EMEA region. There’s a confidence in new tech fuelled by underlying trends that have been accelerated by COVID-19. With certain TMT sectors seen as pivotal to ongoing transformation across the economy and our everyday lives, we’re going to see lively deal activity as companies use mergers and acquisitions to reshape their business for a virtual future. The global findings of PwC’s recently published M&A insights are mirrored by developments in Switzerland.
Three key themes driving M&A activity in tech, media and telecoms:
- Acceleration of pre-existing trends
Tech is no longer a ‘nice to have’. The challenges created by the pandemic have fast-forwarded developments and made technology solutions an absolute necessity. Subsectors of TMT operating in areas such as cloud computing, e-commerce, software as a service (SaaS) and IT security, which provide the cornerstones of business transformation across industries, were already doing well before COVID-19, and have been among the big winners in recent months. Other segments have benefited from the changing work, leisure and consumer habits resulting from remote working, eating at home and virtual communications, with e-commerce, streaming services, gaming and video conferencing in many cases experiencing a boom.
In recent months the strong position of TMT has driven an increase in deals activity, higher valuations, unprecedented volumes of venture capital funding and many tech IPOs. With no obvious signs of developments that could detract from the performance of the tech sector, we see no reason for a slowing in M&A activity, even as we move closer to the end of the pandemic.
- Strong valuations across all types of investment
There were rebounds in many stock market indices around the world in 2020, but none more impressive than in technology. High stock market valuations played a direct role in megadeals in the semiconductor space, as well as facilitating the funding of major deals in other sectors. The growing emergence of so-called special-purpose acquisition companies (SPACs), structures enabling businesses to get access to market funds more quickly than via traditional IPOs, raised unprecedented volumes of capital, much of which flowed into assets in tech-enabled sectors. High valuations were also mirrored in unparalleled venture capital funding.
These high valuations make assets expensive, meaning that buyers wishing to maximise their potential need clearly defined value creation plans. The value and attractiveness of technology businesses are also being affected by growing investor awareness of environmental, social and governance factors. Companies in the technology and telecommunications sectors that are seeking to boost their environmental, sustainability and climate change credentials by managing waste and reducing energy consumption are increasingly attractive propositions in the current landscape of heightened ESG awareness.
- Geopolitical and regulatory concerns
It’s early days to predict the effects of a new US president and ongoing developments in trade relations with China, but it’s probable that geopolitical and regulatory factors will continue to impact dealmaking in the months to come. In the United States tech players are coming under growing regulatory pressure on grounds of alleged antitrust behaviour or issues related to public safety and privacy. There’s also increasing regulatory oversight of public companies and potential IPO candidates in China. While these regulatory factors don’t seem to have slowed deals in the second half of 2020, they may dull the appetite for megadeal activity and platform consolidation as we move through 2021.
Another development to keep a close eye on is the potential impact of growing trade tensions on Chinese investors’ activities overseas, particularly when it comes to investments in technology or other areas with national security implications. Europe, the United States and India, for example, have all moved to increase scrutiny of potential Chinese investments or limit China’s involvement in technology within their borders.
EMEA Technology, Media & Entertainment and Telecommunications Deal Volumes and Values
M&A developments in the Swiss TMT sector
A closer look at the situation in Switzerland shows an even stronger rebound in deal volumes towards the end of the year. This catch-up effect was expected given that many M&A processes were paused earlier in the year due to COVID-19. Year over year, TMT deals activity in Switzerland only grew modestly, with 99 deals in 2019 and 15 in 2020.
Technology has been the main driver behind the year-end rebound. We observed particularly strong deals activity in the software and IT services space, where 16 deals took place in 3Q2020 and 21 in 4Q2020 – notably the acquisition of Avaloq by NEC. We foresee a sustained high level of activity in this area as established players seek to reinforce their capabilities to satisfy higher demand from businesses and consumers shifting an ever-increasing share of their activities online.
“Technology has led the stock market rebound, and with good reason: technology, media and telecoms have proven resilient in the face of COVID-19 challenges, and will continue to advance as the implementation of new technology accelerates. There’s also plenty of scope for consolidation, so expect lively dealmaking going forward.”
Deals in the media and entertainment space also rebounded, particularly in 4Q2020, with ten deals taking place. In this area as well, we are seeing established players using M&A to reinforce their portfolio and capabilities, with six out of these ten deals related to online services – a trend we also expect to continue in 2021. The telecommunications sector saw much more limited activity, with only one major deal in 3Q2020 (Liberty Global’s acquisition of Sunrise) and no deal at all for the sector in 4Q2020. This is, however not atypical, given the size of the Swiss telecommunications sector and past deal history.
In conclusion: bristling with confidence and leading the recovery
One of the remarkable things about the COVID-19 pandemic has been the way it’s amplified and accelerated trends that while foreseen, were not expected to dominate our lives so soon. Most if not all of these developments depend on state-of-the-art technology. Dealmaking in the TMT sector has received a tremendous boost from this, and will continue to do so.
More specifically, emerging developments such as industrial IoT, artificial intelligence, driverless cars and cloud computing will require expanded network capabilities and broadband infrastructure before they can really fulfil their potential. For this reason we expect to see lively interest in companies involved in the rollout of 5G technology.
Other factors which will influence M&A activity going forward include the plans of many technology companies to go public. This will provide interesting opportunities for players looking to acquire new capabilities or reinforce their market positioning. There is plenty of potential for further industry consolidation.
Despite the continuing presence of regulatory pressure and trade tensions, the tech sector has good reason to be confident. Add unprecedented availability of capital to the mix, and we predict strong dealmaking activity in 2021 and beyond.