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As we look ahead to the second half of 2022, the TMT sector is likely to continue to experience high deal volume, as digital adoption drives influence and relevance in global markets. In the first half of 2022, software deals alone accounted for approximately one-quarter of global deal values across all industries.
In a volatile market, shaped by global dislocations, inflation, higher interest rates, taxes, regulation and fallout from COVID-19, dealmakers remain optimistic that the rapid speed of change will create significant M&A opportunities, particularly in the technology sector. Triggered by the changing landscape, we expect TMT players—especially cash-flush companies and private equity (PE) funds—to engage in M&A throughout the remainder of 2022 as they seek to remain competitive and navigate the current uncertainties, including the risk of an economic slowdown.
Currently, consumer demand is driving strong M&A opportunities throughout the value chain of infrastructure-enabling technologies. The long-term shift to digitally enabled experiences is stimulating investment across enterprise segments in areas such as the expansion of fibre networks and the increase in data centre capacity, alongside an emerging spotlight on the metaverse and its associated technologies, including augmented reality, virtual reality, non-fungible tokens and digital content.
‘Despite unprecedented levels of TMT deal activity over the past year, we believe there is still significant upside across sectors from continued digital disruption. Recent global conditions bring new uncertainty but also enable new opportunities for thoughtful investors.’
Americas
- Valuations adjust: The sellers’ market of the past few years was driven by high valuations across industries, especially in the technology sector. As we see deal multiples start to decrease, amid a period of market correction, the M&A space may reach an inflection point and become a buyers’ market. Despite recent interest rate increases, and with more expected before the end of the year, there remains plenty of capital available for deal-making, with many companies and PE firms still flush with cash and motivated to invest. Private markets have not yet seen the full extent of the recent pullbacks in valuations that have occurred in public markets, making them an area to watch through the remainder of the year.
- Public-to-private deals: Market volatility creates opportunities for a rise in public-to-private transactions, as players with cash on hand seize the moment to pick up public companies that have undergone sizeable valuation drops. There will likely be several candidates for acquisition among the many tech companies that had an IPO during the capital-saturated market of the past few years but whose earnings have since fallen short of investor expectations.
- Focus shifts from growth to profitability: Although capital remains available for M&A, we expect that major players (corporates and PE) may re-evaluate deal drivers in the TMT industry to focus on sustainable profits and consistent cash flows, as compared to the prior focus on growth rates. We are also seeing greater focus on environmental, social and governance (ESG) issues, and dealmakers are increasingly prioritising ESG parameters as a part of their due diligence processes.
- Sector hotspots: We expect investors will focus on the following areas:
- Cutting-edge companies emerging to serve customised needs across key verticals such as healthtech, proptech, fintech, e-commerce and autotech.
- Companies providing horizontal software capabilities to improve the consumer experience.
- Software that enables compliance with emerging ESG requirements.
For additional insights, read our US team’s 2022 mid-year outlooks for technology and media and telecommunications.
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Europe, the Middle East and Africa (EMEA)
- Despite uncertainty in the markets, the appetite for M&A activity has not slowed. M&A volumes continue to centre around software, due to the sector’s ability to facilitate digital transformation. Software companies accounted for almost two-thirds of EMEA’s TMT deal value in the first half of 2022. Although tech stocks have taken a hit of late, software companies have previously proven to be resilient to stock market volatility and to macroeconomic downturns. For many of these companies, consumer demand is undiminished, and the core fundamentals of their business models remain strong. If growth rates can be sustained, software companies will remain critical targets for M&A.
- Deals for outdoor media assets, adtech, digital marketplaces, and the convergence of sports and media are generating increased interest, particularly in the UK. ESG reporting requirements and data privacy themes in the region are already having an impact on the deal-making due diligence process.
- Finally, telco players also continue to play a critical role in the EMEA landscape. Their recent focus has been on monetising tower and fibre assets to free up capital to invest in 5G networks, with PE firms as willing buyers as they look to take these assets private.
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Asia Pacific
- In Japan and China, large-cap corporations are becoming more active in global deal-making, with a desire to acquire overseas companies. However, their growth plans are being challenged by increased market uncertainty and increased regulations. In China, companies hoping to go global with their IPOs and M&A transactions must navigate increased pressure from Chinese regulators.
- Technology deals account for approximately one-third of China’s M&A volume and continue to drive strong demand throughout the region. Recent deal activity reveals a steady interest in software, data centres, metaverse infrastructure, AI and cloud computing.
- India’s TMT deals are also dominated by technology, while media and telco sectors remain largely consolidated. Technology M&A in India primarily consists of IT and emerging technology deals, with the latter being fuelled by a high volume of PE activity and a robust start-up ecosystem ripe for consolidation.
- In the Australian TMT sector, three key trends are driving deals: demand for data, digital transformation and re-evaluation of traditional asset ownership strategies. Growing interest in acquiring bespoke software companies to support large industrial businesses will also likely drive M&A activity. We also expect to see more deals involving towers, fibre and data centres over the next six to 12 months, following a trend we see playing out in several other countries.
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Mid-year M&A outlook for technology, media and telecommunications
We expect investor interest in TMT deals to remain strong due to the demand for digital transformation, technology, cloud computing and data-driven capabilities, which are integral to the success of companies’ growth strategies.
Technology and the pace of innovation are moving fast. Although we are seeing volatility and growing uncertainty in the market, we believe there’s plenty of opportunity remaining for companies to embrace the role technology will play in their future—and this, in turn, will create a healthy level of M&A activity over the coming months.
Explore our local M&A trends in Technology, Media and Telecommunications from the following countries:
Want to know the M&A trends we expected in Technology, Media and Telecommunications at the beginning of 2022?
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