3 minute read 9 Dec 2019
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TMT execs remain focused on M&A despite geopolitical and regulatory concerns

Authors
Kenneth Welter

EY Global Transactions Technology Leader

Experienced transaction advisor. Tech enthusiast. Husband and father. Sailor. Challenger of the status quo.

Will Fisher

EY Global Transactions Media & Entertainment Leader

Transaction leader in media and entertainment. Passionate about helping clients formulate and execute successful inorganic strategies.

Axel Majert

EY Global Transactions Telecommunications Leader

Strategy and M&A leader in telecoms. Values a multicultural, diverse and ambitious work environment. Passionate about family, history and sports. Former first division hockey player. Father of two.

3 minute read 9 Dec 2019

Upward M&A trend for TMT is set to continue; dealmaking proves a strategic tool to find growth and acquire skills and capabilities.

A
ccording to the EY Global Capital Confidence Barometer (pdf), the TMT sector will continue to see an active deal market, as 58% of TMT executives expect to actively pursue M&A in the next 12 months, on par with the result from 6 months ago and considerably higher than the 42% cited 12 months ago. This deal activity is not expected to purely be small to mid scale, as 63% of executives expect to see more megadeals (US$10b+) in the next 12 months.

M&A survey TMT mergers and acquisitions chart

M&A unswayed by geopolitical and regulatory affairs

With geopolitical risks, the recasting of trade and tariff rules, and revolving regulatory policies dominating headlines, it is not surprising that regulatory uncertainty and geopolitical uncertainty are cited as the greatest external risks to growth by TMT executives. These external headwinds will likely temper some executives’ enthusiasm. While dealmaking intentions remain high, technology executives are indicating a slightly less active approach to M&A compared with six months ago (59% versus 61%), while the overall proportion of TMT executives intending to pursue deals is unchanged from six months ago.

Pipeline and closure intentions support a healthy outlook for TMT M&A, as executives look to utilize deals to navigate current and potential barriers to growth. The top strategic reasons for M&A include acquiring technology, new production capabilities or innovative startups, breaking into new markets or growing into an adjacent business activity.

The capital required for these acquisitions is being unlocked through divestments, with 57% stating they plan to outsource or divest current operations.

Confidence in the economy underpins intentions

The willingness of TMT executives to engage in dealmaking is underpinned by confidence in the economy and capital markets.

Seventy-seven percent of TMT executives expect global economic growth, and 58% do not expect an economic slowdown in the near to mid-term. Further, at least 70% of respondents are confident in the performance of corporate earnings, market stability, credit availability and equity valuations. Any significant changes in these expectations in the short term may temper M&A appetite.

Economic outlook

58%

of TMT respondents do not expect an economic slowdown in the near to mid term.

Competition for assets is widespread and robust

An active deal market signals intense competition, with 77% of TMT executives expecting to see increasing competition for assets in the next 12 months. This competition is expected to be powered by private capital (57% versus 47% for corporate buyers).

TMT executives are also expecting competition from other sectors, driven by the strategic need to accelerate investment in technology and digitalization, with 80% expecting an increase in cross-sector M&A. Further, 73% expect an increase in cross-border dealmaking, suggesting competitive threats from further afield.

Digital strategy high on the agenda

TMT respondents are feeling the impact digital is having on their industry. They are investing in technology to improve the customer experience, create new services or products, and reduce risk. Artificial intelligence (AI) and machine learning is seen as the technology that will have the most impact on their businesses in the next two years by 32% of respondents, compared with 13% for 5G and 18% for analytics.

Sixty-two percent of TMT respondents are dedicating 25% to 49% of their total investment capital on technology. The majority of the investment is focused on in-house development and R&D (24%), followed by direct acquisitions (21%) and JVs or alliances (19%).

Summary

The EY Global Capital Confidence Barometer (pdf) gauges corporate confidence in the economic outlook and identifies boardroom trends and practices in the way companies manage their Capital Agendas.

About this article

Authors
Kenneth Welter

EY Global Transactions Technology Leader

Experienced transaction advisor. Tech enthusiast. Husband and father. Sailor. Challenger of the status quo.

Will Fisher

EY Global Transactions Media & Entertainment Leader

Transaction leader in media and entertainment. Passionate about helping clients formulate and execute successful inorganic strategies.

Axel Majert

EY Global Transactions Telecommunications Leader

Strategy and M&A leader in telecoms. Values a multicultural, diverse and ambitious work environment. Passionate about family, history and sports. Former first division hockey player. Father of two.