The technology, media and telecom (TMT) sector has seen significant mergers and acquisitions activity in recent years. Lately there have been a number of notable M&A transactions announced in the space, with mega mergers proving a popular, though controversial, piece of the dealmaking puzzle.
According to Mergermarket, there were 3021 TMT deals completed in 2016, worth $698.2bn. Though this represented a decrease of 4.5 percent in value and 5.7 percent in deal count compared to the previous year, 2015 was a record year which saw 3203 deals worth $730.8bn announced. 2016 was still notable, with the TMT space accounting for 21.4 percent of global M&A activity, up from 18.5 percent in 2015.
The final quarter of 2016 was the most active period, particularly in the US, as companies rushed to get deals completed before the US presidential election. Yet appetite does not appear to have been diminished in Q1 2017. According to AdMedia Partners, dealmaking in the TMT industry is expected to stay strong throughout 2017, maintaining interest levels seen over the last two years.
But what has sparked this activity? One of the most obvious catalysts has been rapid technological developments. The proliferation of high speed broadband and smart devices, as well as the emergence of dual screen media consumption and ‘cord-cutting’, have all helped to drive dealmaking as companies try to get to grips with a new industry paradigm. The way people consume media has evolved remarkably, and the challenge for traditional media companies is to find ways to compete. As traditional business models are rendered obsolete and new actors enter the media and technology industries, companies will not be able to close Pandora’s box. These organisations must alter their business models to adapt. As a result, we may see more mergers like the proposed $85bn transaction between AT&T and Time Warner.
After a number of fallow years, TMT mega mergers are resurfacing. A number have been announced over the last 12 months, and that is expected to continue. Though president Trump has expressed concern over the proposed merger between AT&T and Time Warner, there is belief that the new administration will be generally supportive of big money deals, and keen to limit regulatory oversight in certain areas.
Content is king
While more relaxed regulatory oversight could spur increased dealmaking, another likely catalyst is content consumption.
As the AT&T/Time Warner deal has demonstrated, in the media space, content is king. As Netflix and other ‘over the top’ (OTT) streaming providers eat into the market share of traditional broadcasters, the media and entertainment space is undergoing a fundamental shift. This is likely to be punctuated by more deals in the year ahead, particularly if consumers continue to ‘cut the cord’. Netflix has surpassed expectations and has taken the media industry be surprise. The company’s Q4 2016 was particularly stellar as it added 7 million members, making it the largest period of net additions in its history, taking total global membership to 94 million.
As more linear service providers continue to lose customers and revenue to non-traditional OTT streaming services, telecoms providers will pursue deals for content providers. The desire of telecoms service providers to successfully bundle in content offerings will likely prompt more convergence deals in the future.
Grouping communications, entertainment and utility products into single, customisable packages may become a core offering for telecoms companies that cannot hold back the tide of change. Indeed, companies may embrace convergence as a means to aggressively pursue expansion. The fight for consumers’ eyeballs – and their wallets – will see companies move beyond traditional spheres of influence, acquiring new assets in the process. We need only look to companies like Google and Amazon as examples of organisations now operating well beyond their original remits.
Overseas interest has also played an influential role in TMT dealmaking. Chinese companies have been active in the industry, hoping to import established media properties into the domestic Chinese market. According to Mergermarket, TMT focused deals in mainland China passed the $100bn mark in 2017 for the second consecutive year. Acquirers are chasing deals for media content, FinTech assets and Big Data resources. The standout Chinese deal saw Hong Kong-listed Tencent acquire a controlling stake in Finnish mobile game developer Supercell from owner SoftBank Group Corp for $8.6bn.
The TMT space is changing. Though some companies will choose to grow more organically, many will opt for dealmaking. Furthermore, given the dramatic and disruptive effect of emerging technology such as virtual and augmented reality, and with regulatory oversight set to be reduced, expect 2017 to be another prolific year in the M&A market.
© Financier Worldwide