Press release

19 May 2020 London, GB

Demand for virtual services and technology investment eases impact of COVID-19 on TMT deal outlook

LONDON, 19 MAY 2020. While the COVID-19 pandemic has eroded deal market expectations for some technology, media and entertainment and telecoms (TMT) executives, increased demand for virtual services and appetite for technology investment has offset some of the immediate challenges for many subsectors.

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  • Global technology executives are optimistic, with 70% expecting M&A to improve
  • Media and entertainment deal outlook strained, yet 25% look to gain market share
  • Telecoms perceived as one of the least impacted sectors by the global pandemic

LONDON, 19 MAY 2020. While the COVID-19 pandemic has eroded deal market expectations for some technology, media and entertainment and telecoms (TMT) executives, increased demand for virtual services and appetite for technology investment has offset some of the immediate challenges for many subsectors. This is according to the latest edition of the EY Global Capital Confidence Barometer (CCB), which highlights the impact of the global health crisis on deal confidence across the TMT industry, and how businesses are preparing for the future.

Overall, technology and telecoms executives are more optimistic about the mergers and acquisitions (M&A) market than media and entertainment (M&E) executives, who have seen some particularly severe impacts.

Technology executives view M&A as a strategic tool for recovery

The technology sector appears to be more confident in the deal outlook than other sectors, with 70% expecting to see the M&A market improve in the short-term compared with 56% of non-technology respondents. Similarly, technology executives are optimistic about the future, with 63% expecting to see a V-shaped recovery compared to 38% of other sector respondents.

The CCB finds that companies across industries are looking to technology to fuel growth, with 71% of all sector respondents prioritizing technology investments. This appetite is strengthened by increased usage of online collaborative technology for remote workers, education and health care, which has mitigated some of the initial shockwaves.

Ken Welter, EY Global Technology Transactions Leader, says:

“While significant uncertainty is likely to remain for some time as businesses look to stabilize, most technology executives remain confident in the deal landscape. Well-capitalized companies are expected to use M&A as a lever to accelerate recovery, as industry convergence intensifies. It is critical now that dealmaking decisions not only address current business needs, but also enable responsiveness and resilience for the future.”

Media and entertainment executives re-evaluate as confidence dips

The M&E sector is expected to face underperformance throughout the global pandemic, with 41% of executives reporting a negative macro outlook compared with just 12% when the last CCB was published in October 2019. Outcomes vary across subsectors and, while streaming media usage and video game engagement are surging, areas like advertising and live entertainment have been disproportionally affected.

Eighty-two percent of M&E respondents expect the COVID-19 crisis to have a severe impact on the global economy, above the global average across all sectors (73%). And only 49% expect to actively pursue M&A in the next 12 months – down from 59% in October 2019. However, many respondents are looking ahead, with 25% identifying the current landscape as an opportunity to gain market share.

Will Fisher, EY Global Media & Entertainment Transactions Leader, says:

“The uniqueness of the current situation has left many media and entertainment companies unprepared. The vast majority are focused on addressing their business’ short-term performance, coupled with reassessing medium to long-term priorities. Executives are continuing to plan for what’s next and remain open to opportunities to acquire high-quality assets that will accelerate growth when the market recovers.”

Telecoms earnings under pressure despite sector resilience

Telecoms is viewed by all CCB respondents as one of the least impacted sectors (ranking 4th of 14), which is consistent with telcos’ business model and relatively resilient cash flows. Sixty-five percent of telco executives believe they will see strong improvement in the M&A market during the first half of 2020 and an encouraging 58% expect to pursue M&A in the next 12 months.

Despite the sector’s relative resilience, telco earnings are under pressure, with only 51% indicating that they are positive about sector earnings, down from 70% in October 2019. The COVID-19 pandemic is also prompting a marked shift in strategy, with telcos more likely to re-evaluate or adapt their business (78%) compared with other sectors (69% across all CCB respondents).

Axel Majert, EY Global Telecommunications Transactions Leader, says:

“The COVID-19 pandemic is likely to accelerate appetite for digital services, including cloud, mobility and security solutions. And operators’ demand for capital will continue to increase, as they look to support infrastructure M&A such as spin-offs of fiber or tower companies, and selective consolidation. But while telecoms has been less impacted by the health crisis than some sectors, businesses are not immune to emerging risks and intensifying competition. Agility and prioritizing reliable customer offerings will be the key to survival and growth.”

For more insights, please visit EY sector pages for Technology, Media & Entertainment and Telecoms.

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About the EY Global Capital Confidence Barometer

The EY Global Capital Confidence Barometer gauges corporate confidence in the economic outlook, and identifies boardroom trends and practices in the way companies manage their Capital Agendas — EY framework for strategically managing capital. It is a regular survey of senior executives from large companies around the world, conducted by Thought Leadership Consulting, a Euromoney Institutional Investor company. The panel comprises select EY clients across the globe and contacts and regular Thought Leadership Consulting contributors.

  • From February 4 until March 26, Thought Leadership Consulting surveyed on behalf of the global EY organization a panel of more than 2,900 executives in 46 countries; 72% were CEOs, CFOs and other C-suite-level executives.
  • Respondents represented 14 sectors, including Financial Services, Consumer Products and Retail, Technology, Life Sciences, Automotive and Transportation, Oil & Gas, Power & Utilities, Mining and Metals, Advanced Manufacturing, and Real Estate, Hospitality and Construction.
  • Surveyed companies’ annual global revenues were as follows: less than US$500m (25%), US$500m–US$999.9m (26%), US$1b–US$2.9b (16%), US$3b–US$4.9b (11%) and greater than US$5b (22%).
  • Global company ownership was as follows: publicly listed (51%), privately owned (22%), publicly listed — family controls over 35% of the voting rights (15%), private — family controls over 50% of the voting rights (5%) and private equity portfolio company (7%).