Rapid change continues to create opportunities, particularly in technology, for dealmakers in the TMT sector. In the next few months we’re likely to see companies and private equity (PE) funds with plenty of cash at their disposal engage in dealmaking in an attempt to stay competitive and negotiate the current uncertainty ‒ not least the risk of economic slowdown.
Infrastructure-enabling technologies are a hot topic, with consumer demand leading to attractive M&A opportunities along the associated value chain. We’re seeing the ongoing adoption of digitally-enabled experiences, and this is spurring investment ‒ coming from every segment of the TMT sector ‒ in areas such as expanding fibre networks and boosting data centre capacity, plus a growing focus on the metaverse and associated technologies such as augmented and virtual reality, non-fungible tokens and digital content.
Regional M&A trends in tech, media and telecoms
Americas
- Valuations adjust: After several years of a sellers’ market driven by high valuations, especially in technology, we’re now seeing deal multiples start to decline and the market correct. We may observe a shift in M&A to a buyers’ market. Despite interest rate hikes there is still ample capital available for dealmaking, and many corporates and PE funds have the means and motivation to invest. Keep an eye on private markets, where valuations have not yet retreated as far as in public markets.
- Public-to-private deals: In such a volatile market environment there are opportunities for public-to-private transactions as public companies whose valuations have dropped sharply enter the sights of private players with plenty of cash. This could include some of the many tech companies that went public when the market was saturated in capital in recent years but which have failed to meet investors’ earnings expectations.
- Shift in focus from growth to profitability: Despite the abundant cash available, major corporate and PE players are likely to focus on M&A targets with sustainable profits and consistent cash flows rather than growth rates, as has been the case. This is likely to combine with a closer focus on environmental, social and governance (ESG) considerations.
Europe, the Middle East and Africa (EMEA)
- Outdoor media assets, adtech, digital marketplaces and sports/media convergence: Deals in this space are attracting growing interest, especially in the UK. The due diligence process in the region is already showing the effects of ESG reporting requirements and data privacy concerns.
- Telcos: This segment still plays a key role in EMEA dealmaking. Recently we’ve seen PE firms snap up deals designed to monetise tower and fibre assets to free up cash for 5G network investments.
- M&A appetite unabated: The market uncertainty hasn’t dampened appetite for dealmaking. The focus remains on software as an enabler of digital transformation. The recent volatility in the equity markets has deflated many tech stocks, which created opportunities to acquire companies that might have been out of reach a few months ago.
Asia Pacific
- Japan and China: Large-cap companies in Japan and China are getting more involved in global M&A by acquiring businesses overseas. They do, however, face obstacles to their growth plans in the form of growing market uncertainty and tighter regulation.
- Technology in China: Deals in this sector make up around a third of China’s M&A volume and are still driving powerful demand throughout the region. Dealmaker interest in software, data centres, metaverse infrastructure, artificial intelligence and cloud computing remains steady.
- Australia: Here three main trends are driving M&A in the TMT sector: demand for data, digital transformation, and the re-evaluation of traditional asset ownership strategies. Reflecting a trend in other countries, we expect to see an increasing number of transactions targeting towers, fibre and data centres.
“Digital disruption still has plenty of steam in all sectors of the industry. As in any environment of uncertainty, opportunities remain for clear-sighted investors.”
M&A developments in the Swiss TMT sector
M&A activity involving Swiss TMT companies held its own well in an uncertain market environment characterised by growing inflation, increasing interest rates and supply chain constraints. The first two quarters of 2022 have seen the Swiss TMT sector match its record level set in 2H2021, with a total of 69 transactions involving Swiss TMT target companies.
Swiss TMT M&A deals continue to centre around tech companies and, more specifically, software developers, mainly due to the sector’s ability to facilitate digital adoption and transformation. Software companies accounted for more than 80% of the Swiss TMT deal volume in the first half of 2022. Even though some tech stocks have recently taken a hit, many software companies remain attractive M&A candidates, particularly in the cloud, analytics, collaboration and security space. They enjoy undiminished consumer demand and their business models are still fundamentally strong. As a result, we expect software companies to remain the key TMT M&A targets in Switzerland in the remainder of 2022.
Over the last 6 months, some of the main Swiss transactions in the software sector (where deal values were made public) related to:
- the acquisition of a minority stake in SonarSource SA, a Geneva-based company developing open source software to improve code quality and security, by an investor group comprising Advent, General Catalyst Partners, Insight Partners and Permira for a total of CHF 395m (at a total company valuation of CHF 4.5bn)
- the acquisition of a majority interest in beqom SA, a Nyon-based provider of performance and compensation management software solutions, by Sumeru Equity Partners (for CHF 279m); and
- the acquisition of a minority stake in Scandit AG, a Zurich-based technology platform offering smart data capture and barcode scanning software solutions, by a group of investors comprising GV Management (Google), Kreos Capital, Swisscom Ventures and Warburg Pincus, among others.
As highlighted by the deals above, PE funds remain very active in the Swiss TMT space, with roughly half of the total transactions involving financial investors in 1H2022. With global private equity dry powder at an all-time high in June 2022 (USD 2.3tn), we expect PE to continue playing a key role in the TMT market in the months to come.
Mid-year outlook: M&A in TMT set to remain strong
Given the continued strong demand for digital transformation, cloud computing and data-driven capabilities ‒ all keys to the success of companies’ growth strategies ‒ we believe that companies still have ample opportunity to embrace the future of technology, leading to healthy dealmaking activity in the next few months.
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