Dealmakers are optimistic that global technology, media and telecommunications (TMT) mergers and acquisitions (M&A) activity will continue in 2022 amidst continued growth in the sector and a rapid pace of change. Three trends, in particular, define the current TMT deals landscape globally.
- New market opportunities lead to consolidation
Market opportunities created by innovation and technology, combined with a favourable capital-raising environment in 2021, have led to significant growth in the number of technology companies globally. In a crowded market, well-funded players, including many new public companies, are using M&A to rapidly scale their businesses in the race for market dominance.
- Tech convergence follows tech disruption
Technologies such as artificial intelligence (AI), internet of things (IOT) and cloud-based computing have disrupted traditional industries like healthcare, advertising, automotive and banking, and have led to tech convergence—where technology is embedded in the products or services of an industry, often creating a new industry in itself. As these ‘hybrid-tech’ companies infiltrate large markets, such as the multi-trillion dollar global healthcare market, the race to exploit emerging technologies creates opportunities for M&A, either as an acquirer or as a target to be acquired.
- Capital investment is readily available and going global
The business models of the new generation of tech companies are lower cost and more scaleable than before—boosting valuations and making it easier to attract funding. The Silicon Valley venture capital (VC) funding model—of scaling companies ahead of initial public offerings (IPOs)—has also gone global. For example, India has seen huge growth in the number of unicorns, with 79 unicorns in December 2021 with a total valuation of US$260bn. The high number of private tech unicorns and a strong IPO pipeline globally are expected to create further opportunities for M&A in 2022.
“Tech is proliferating across several industry boundaries at an accelerated pace. Record VC investments and IPOs in the tech space are creating heightened competition and opportunities for consolidation that will lead to M&A reaching record highs in 2022.”
M&A hotspots
We expect the following areas to be hotspots of M&A activity in 2022:
- Crypto
- Healthtech
- Energy storage
- Metaverse
Crypto
As digital assets gain broader mainstream acceptance, traditional finance companies seeking a cryptocurrency foothold are bolstering their core businesses through M&A. Companies across industries are attempting to incorporate and monetise non-fungible tokens (NFTs) as a component of their core businesses. After a record year in 2021 — almost 400 crypto deals in total, more than triple that in 2020 — we expect a continued acceleration in crypto-related IPOs and acquisitions in 2022 across trading platforms, digital payment applications and related products.
Healthtech
Tech-enabled healthcare and wellness industries will continue to generate strong investor interest and high levels of M&A activity. We expect that advancements in AI-enabled frontier technologies, data science and biotech will lead to a new generation of companies offering virtual visits, remote medicine delivery, personalised medicine, wellness and exercise equipment, wearables, and mental health services. Investors, including tech giants like Apple, Google, Amazon, Oracle and Microsoft are poised to upend the multi-trillion dollar healthcare industry by using technology to improve aspects of research, delivery, payment and consumption of care.
Energy storage
A focus on reducing carbon emissions stemming from COP26 and the increasing importance of ESG and government support for the energy transition are creating new market opportunities for companies focused on energy storage technologies. We expect a dynamic next few years in the energy storage space, as growing demand, particularly from the tech, automotive and energy sectors, will attract investment and M&A. The tech sector is well positioned to play a key role in stationary energy storage such as developing alternatives to lithium-ion battery solutions.
Metaverse
Companies developing AI, virtual reality (VR), augmented reality (AR) and connective hardware are attractive acquisition targets as interest in the metaverse grows, and we expect more M&A to quickly follow. Big tech, media conglomerates, online gaming companies and other tech disruptors are all investing heavily in these technologies, as they vie to shape the development of the infrastructure and position themselves to benefit from the market opportunity in this emerging digital ecosystem.
M&A activity and values
Technology, media and telecommunications deal volumes and values, 2019-2021
Sources: Refinitiv, Dealogic and PwC analysis
The record jump in M&A activity is nowhere more evident than in TMT, and specifically in tech. While the second half of 2021 has not matched the supercharged first half of the year, 2021 as a whole ended significantly higher than 2020 and well beyond pre-pandemic levels. Megadeals—those with a deal value greater than US$5bn—continued to boost overall deal values. Deal volumes and values increased between 2020 and 2021 by 32% and 48%, respectively. We expect momentum from 2021 to continue during 2022, fuelled by available capital (from corporates, PE and special purpose acquisition companies (SPACs)) and by continued investor interest in content, crypto, digital assets and anything ‘-tech’. Three areas to watch closely next year that could dampen M&A activity are rising interest rates, continued high multiples and a tightening regulatory environment—particularly in technology, as big tech players come under increasing scrutiny.
Key themes behind current M&A activity
Three kinds of tech redefine M&A
As valuations soar and disruptive technologies take up a larger portion of market share in the COVID-19 era, three types of tech are emerging to redefine M&A across all sectors of the economy:
- Tech for tech. Companies that focus on enterprise-level technologies such as telecom, core cyber, networking and data management are engaging in M&A at record levels to position themselves as strategic players in a competitive market. Technology and telecom multiples have soared, which we expect will lead to some companies taking advantage of high valuations to divest non-core assets in order to reinvest in higher-growth areas. Other large companies are acquiring young, innovative start-ups to compete with rapid new entrants.
- Tech for everything. The race to acquire technological capabilities is pervasive across all industries as digital disruption leaves no industry untouched. Legacy players will need to bolster their tech capabilities in order to compete and survive; new digital-native players will deploy M&A to build scale. We anticipate that innovation in tech-enabled industries—such as fintech, autotech, edtech, adtech, healthtech and direct-to-consumer (D2C) business models—will fuel fundraising and M&A globally.
- Tech reinventing the world. Technology has evolved to fundamentally change the way businesses operate and how we live our lives. In the next era of tech, innovation is likely to be faster and more intense, creating greater disruption and almost limitless possibilities to reinvent the world we currently live in. M&A will help new business models—such as those centred around energy storage, self-driving cars, crypto, the metaverse and even space exploration—to emerge and quickly develop to meet ever-changing business and consumer needs.
‘Eat or be eaten’
Investor and corporate enthusiasm, combined with record capital availability, has increased multiples for sought-after technology assets. In the first three quarters of 2021, global VC funding alone was roughly a half a trillion US dollars. In this highly competitive landscape, many companies are faced with the decision to either acquire competitors or find themselves as the acquisition target.
‘Cash is king’
Companies with ample cash for deal-making will be well positioned to consolidate. As we come off a low interest rate environment, where debt is cheap and capital abundant, some investors may move funds away from higher-risk opportunities making it more difficult to finance M&A. Start-up companies—which are typically loss-making and burn through cash in their early years—in particular may face challenges in raising funding. New public companies or those which built cash reserves through cost savings or operational efficiencies will be better positioned to finance acquisitions and will therefore likely gain an advantage as cost of capital increases.
Asia-Pacific
- Legacy tech companies, such as traditional Japanese conglomerates, are likely to divest slow-growth businesses and reinvest proceeds in emerging technologies and fast-growing industries such as data and analytics, robotic process automation, and data security.
- The telecommunications industry is likely to experience a similar trend of divestitures, as corporates focus on the growing 5G market.
- Fundraising and IPOs are on the rise for tech-enabled start-ups, following the global trend. Dealmakers are keeping a close eye on record-high tech valuations, as they could lead to a tipping point in M&A activity.
- As the PE sector has matured, we are seeing greater interest in the software and IT services sector in Asia-Pacific, a trend we expect to continue in 2022.
Europe, the Middle East and Africa (EMEA)
- We expect M&A activity to remain steady over the next six months, as global firms, PE firms and companies flush with capital continue to expand via acquisitions.
- A wave of consolidations across the IT and telecom sectors reflects the desire within firms to create bigger platforms, integrate the internet of things (IOT) and fibre technology, and drive greater value creation for their shareholders.
- Fibre appears to be a promising area for transactions in 2022, as wireless carriers will need to take advantage of high-capacity fibre networks in order to support the expansion of 5G.
- PE firms are increasingly attracted to tech sector targets, particularly those focused on IT services, cloud migration and adtech.
- Early-stage investments in European and Israeli technology companies are expected to go public in 2022, continuing a trend which started in 2021.
The Americas
- Valuations remain strong, with record multiples seen across all technology verticals, and we expect M&A markets to remain robust.
- The pandemic continues to highlight the need for critical digital infrastructure, leading to further PE interest in data centres, and the desire for interaction and greater connectivity, leading to interest in advertising opportunities.
- A resurgence of adtech deals is likely as newer businesses, such as gaming companies, are focused on efficient collection and monetisation of data.
- Streaming content will remain in high demand, although M&A activity among corporates may slow in 2022—due to a spate of recent deal-making, whereby many major media companies built out their content-producing capabilities to fill streaming offerings.
- Hardware companies are using M&A to help transition from traditional product-focused business models to more profitable subscription-based models with recurring revenue streams.
M&A outlook for technology, media and telecommunications
We expect global M&A activity to increase in 2022, following a banner year in 2021. Abundant VC funding, new IPOs, and a greater role played by private equity will bolster an already hot deals market, just as traditional industries face disruption and the COVID-19 pandemic pushes innovative technologies into the mainstream faster than anticipated.
As tech continues to grow in relevance across industries—and emerging markets like energy storage, healthtech, the metaverse and crypto become more prevalent—we expect business leaders to prioritize M&A strategies to accelerate growth, gain scale and digitise their businesses.
About the data
We have based our commentary on M&A trends on data provided by industry-recognised sources. Specifically, values and volumes referenced in this publication are based on officially announced transactions, excluding rumoured and withdrawn transactions, as provided by Refinitiv as of 31 December 2021 and as accessed on 2 January 2022. This has been supplemented by additional information from Dealogic and our independent research, and includes data derived from data provided under license by Dealogic. Dealogic retains and reserves all rights in such licensed data. Certain adjustments have been made to the source information to align with PwC’s industry mapping.
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Global Technology, Media & Telecommunications Deals Leader, Principal, PwC United States
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