Looking forward in 2024, there are reasons for optimism about dealmaking in the technology, media and telecommunications (TMT) sector. Advances in generative AI and other new technologies, more certainty around interest rates, record levels of capital to invest by private equity (PE), and pent-up demand for dealmaking all point towards an increase in TMT deal activity in 2024.
Deal values remained significantly lower throughout 2023 than in the prior two years. The past year has also seen significant fluctuations in deal activity, with record deal volumes in the first half of 2023 followed by a significant decrease in the second half of the year. The decline in deal activity during the second half of 2023 is attributable to factors such as more restrictive monetary policy, the effects of inflation on consumers, geopolitical conflicts and a changing regulatory environment. Additionally, valuations of companies are often more sensitive to bank rates in TMT than in other industries, which has created a valuation gap between buyers and sellers.
In 2024, we expect a laser focus on extracting more value from each deal to be a consistent M&A theme—even more necessary given the higher cost of capital.
‘Pressure to deploy capital and pursue strategic transactions will underpin TMT dealmaking in 2024. Valuations are now readjusting after the macroeconomic and geopolitical uncertainty in 2023 dented confidence and dealmaking activity across the TMT sectors.’
Barry Jaber,Strategy&, Global Technology and Telecommunications Deals Leader, Partner, PwC UKM&A hot spots
We expect the following areas to be hot spots of M&A activity in 2024:
Software-as-an-opportunity: Software continues to attract investor interest because of the nature of its subscription-based business models, particularly from PE players, which now account for approximately two-thirds of all software deals. With more predictable recurring revenues and cash flows, the software sector will continue to appeal to investors in the current lower-growth environment. As a result, we expect software to continue to dominate technology dealmaking activity in 2024. The first half of 2023 saw more than 5,000 software deals, beating the records set during 2021 and early 2022, although the volume fell back significantly during the second half of the year in large part because of the overall macroeconomic environment and challenges in financing deals. Deals which did get done tended to be smaller and thus easier to finance. Deal value remains well below previous levels because of a notable reduction in megadeals. However, the overall attractiveness of enterprise software will ensure that it remains a hot spot for TMT M&A activity in 2024.
Telecoms consolidate and Netco models re-emerge: Telecom market structures continue to be transformed by consolidation and the re-emergence of the Netco model—where companies own and operate the network infrastructure and lease it to telcos and service providers—as a means to realise synergies, mutualise costs and attract alternative capital. We expect to see these trends play out across both fixed and mobile segments, particularly in Europe, where key players have struggled to generate appropriate returns on capital. This represents a significant opportunity for strategic investors, private equity and infrastructure capital.
- Streaming consolidation: With the end of the US writers’ and actors’ strikes, streaming services face less ambiguity about costs going forward and more predictability in production processes. This enables these players to better model and analyse their ongoing operations. Additionally, improved access to data provides streaming companies with enhanced visibility into consumer preferences such as the number of platforms to which consumers are willing to subscribe, penetration in major markets and content preferences driving consumer behaviour. We believe the ecosystem is ripe for consolidation and expect some streamers in the market to look for strategic partners in the next six to 12 months.
‘As entertainment platforms continue to advance and offerings expand, those players with a full suite of services should enjoy a sticky subscriber base—while others may need to explore M&A, joint ventures or partnerships to remain relevant in an ever-evolving ecosystem competing for consumers’ discretionary time and money.’
Bart Spiegel,Global Entertainment and Media Deals Leader, Partner, PwC USM&A volumes and values in 2023
Technology, media and telecommunications deal volumes and values, 2019-2023
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Global: A new record was set for M&A activity in TMT in the first half of 2023, with around 8,500 deals announced, 100 more than the previous record of 8,400 deals that was established in the first half of 2021. However, the second half of the year was a different story, with deal volumes declining by 31% from the first half of the year to less than 6,000 deals. For 2023 as a whole, deal volumes ended the year down 1% on the prior year. Deal values decreased by 44% in 2023 compared to the prior year, primarily because of a combination of smaller deals and lower valuations. Furthermore, the number of TMT megadeals dropped from 42 in 2021 to 24 in 2022 and just 11 in 2023.
Global TMT deal volumes and values with PE involvement, 2019-2023
- Technology continued to dominate TMT M&A activity in 2023 accounting for approximately 85% of deal volume and deal value. Of the seven megadeals (defined as deals over $5bn) announced in TMT in 2023, six were in the technology sector, including the largest deal of the year, Cisco’s $28.1bn proposed acquisition of Splunk.
- Technology deal volumes increased to record highs driven by strong quarters in the first half of 2023 in the Americas and EMEA. While global technology deal volumes increased marginally in 2023, deal values decreased by nearly 60%, due to a combination of smaller deals and lower valuations.
- Software continues to account for the vast majority of technology deals, followed by IT services.
PE involvement in deals (whether as the direct buyer, as an indirect buyer through a portfolio company acquisition or as the seller) has grown over the past five years from approximately one-third of deal volumes and values in 2019 to over one-half of deal volumes and values in 2023.
The technology sector remains a bright spot for M&A
Global technology deal volumes and values, 2019-2023
- The technology sector accounted for 85% of TMT deal volumes in 2023, and with more than 12,000 deals in the sector in the past two years, is a significant component of the overall global M&A market. With ongoing trends of digitalisation and technological disruption, we expect the technology sector will remain a bright spot for M&A in 2024 and beyond.
In 2023, the software subsector accounted for almost three-quarters of technology deal volumes, with almost 9,000 deals. This was 2% higher than in 2022. The next most active subsector was IT services, with almost 2,000 deals in 2023, followed—at some distance—by semiconductors and equipment with just over 600 deals.
In terms of deal values, software accounted for two-thirds of technology deal values in 2023, down from almost three-quarters the prior year, primarily because of a decline in the number of megadeals and lower valuations. In 2023 the largest technology deal announced was a software deal—Cisco’s approximately US$28bn proposed acquisition of Splunk.
Key themes driving M&A activity in 2024
Investor focus on margins
Higher interest rates and an uncertain and volatile economic outlook punished unprofitable (and lower-profitability) TMT companies’ valuations in 2023. Consequently, TMT companies, particularly in the technology sector, have focused more on cost reduction and/or avoidance than in recent years, and investors have increasingly prioritised profitability relative to revenue growth in evaluating deals, a trend we expect to continue in 2024.
Regulatory headwinds
Some of the biggest M&A headlines in 2023 have centred on regulatory scrutiny as regulators across the globe continue to investigate and take action. Several TMT deals have received tough scrutiny, particularly from US, UK and EU regulators concerned about Big Tech acquisitions that boost the market power of dominant companies or involve start-ups seen as nascent rivals. Although some large deals have failed to obtain regulatory approvals, others have succeeded. For example, Meta closed on its US$400m acquisition of Within Unlimited, taking more than a year to secure necessary approvals to move forward with the deal. Similarly, Microsoft worked through the regulatory process to gain approval for its US$68.7bn acquisition of Activision Blizzard. Regulators in the EU recently introduced a Digital Markets Act which aims to curtail the power of Big Tech and anti-competitive behaviour. The EU regulators also ordered Google to sell part of its ad-tech business. In 2024, we expect continued regulatory pressure will dampen enthusiasm for M&A and extend the time it takes to close larger deals.
IPOs and de-listings
There is pent-up demand for new investment opportunities, and the growing backlog of tech and other companies waiting to go public likely means some of these will come to market in 2024. However, the window for IPOs will be narrow due to upcoming elections in the US, the UK and certain other countries. While waiting for a more receptive market, TMT companies have focused on strengthening their financials and developing alternative scenarios including potential sales.
In addition to the challenge for tech companies of raising capital in the public equity markets, poor post-IPO performance in the sector has led to some material valuation declines and a growing trend of public-to-private deals. Notable tech company de-listings include Francisco Partners and TPG’s US$6.5bn acquisition of New Relic and EQT’s reacquisition of German software firm SUSE, which had gone public via an IPO two years previously. With the current market conditions, we expect investors will find further opportunities, particularly in the tech sector, with PE funds remaining eager to acquire some high-quality public companies with strong earnings potential at lower valuations and take them private.
Global M&A trends in technology, media and telecommunications
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