TMT, Q1-Q4 2016
Data analysis
Technology, Media & Telecommunication (TMT) completed 3,021 deals worth US$ 698.2bn last year, representing a decrease of 4.5% in value and 5.7% in deal count compared to a record 2015 (3,203 deals, US$ 730.8bn), while deal count remained consistent.
The sector accounted for 21.4% of global M&A activity, up from 18.5% in 2015 and its second highest share on Mergermarket record (since 2001) after 2013 (22.4%). Deal activity accelerated towards the end of 2016, with deals announced in the final quarter of the year (683 deals, US$ 295bn) marking the highest Q4 value on record.
US M&A activity ramped up in the run up to November’s presidential election, with dealmakers looking to complete business before a winner was announced. High profile mega-deals, such as AT&T’s US$ 105.0bn takeover of Time Warner, the largest transaction targeting any sector globally in 2016, and the US$ 34.5bn acquisition of Level 3 by CenturyLink, were both announced in the month prior to the election.
Such big-ticket deals consequently led to the US being the most active region last year having recorded its second highest deal value on Mergermarket record with 1,101 deals worth US$ 362.7bn, accounting for 41 more deals compared to a record 2015 (1,060 deals, US$ 393.8bn), despite a 7.9% decrease in value. According to Mergermarket intelligence, Donald Trump’s surprise Presidential victory spurred the markets, with dealmakers hopeful that a more business-friendly climate will encourage M&A.
Europe followed in terms of deal activity, with 992 deals worth US$ 168.6bn reaching the highest annual value since 2007 (US$ 181.8bn, 933 deals), while increasing its market share to 24% from 19% in 2015. This increase was largely due to a rise in activity targeting Technology (708 deals, US$ 121.3bn) and Media (199 deals, US$ 29.2bn), up 72.6% and 107.7% by value year-on-year, respectively.
Global M&A TMT Trend
Due to a largely consolidated industry, the Telecommunications sub-sector (175 deals, US$ 99bn), saw a 57.4% drop by value globally compared to 2015 (205 deals, US$ 232.5bn), and its lowest deal value since 2009 (US$ 80.7bn, 178 deals).
Dealmaking within the global Media sub-sector was bumped up by megadeals such as the previously mentioned AT&T/Time Warner deal, as well as the US$ 22.4bn takeover of Sky by Twenty-First Century Fox. This resulted in M&A targeting the sub-sector (US$ 188.1bn, 554 deals) recording its highest annual value on record, despite its lowest deal count since 2012 (490).
Activity among Fintech companies is expected to swell further as corporates search for improved customer experiences while diversifying their services and reducing costs. The Internet of Things (IoT), advertising and marketing are other niche sub-sectors to watch. With investors on the lookout for disruptive technologies, dealmaking has yet to be affected by geopolitical uncertainty as buyers wait for opportunities created by market changes.
Morgan Stanley led the Financial Advisor league table by deal value, having been mandated on 60 deals worth a combined US$ 245.1bn, including AT&T’s US$ 105.0bn Time Warner takeover. Goldman Sachs topped the Financial Advisor league table by deal count, advising on 64 deals worth US$ 185.5bn.
Weil Gotshal & Manges (71 deals, US$ 200.6bn) was the Legal Advisor mandated on the highest value of deals during 2016. Meanwhile, DLA Piper led the league table by deal count since 2010, with 123 deals worth US$ 60.7bn recorded.
Top deals
Heat chart based on potential companies for sale
Drivers
Trump’s presidency could bring tax cuts that benefit growth, but also isolationist views that could potentially harm the market. “To the extent his policies negatively impact the public markets, the creation of jobs in new companies and sectors will be impacted for the worse,” said Ray Rothrock, CEO of Red Seal, adding however, his policies may give the public markets a positive push.
Despite question marks hanging over Trump’s commitment to research and development in technology, his professed disdain for regulation is expected to unlock the potential for more mega-deals. Much will depend on how the AT&T/ Time Warner deal overcomes regulatory hurdles.
AT&T and Time Warner’s rivals could feel pressure to consider alternative strategies if US regulators approve the deal. But for now, the transaction involves such serious integration risk that many telcos and cable companies are unlikely to respond with similar moves, although consolidation among content providers could gather momentum.
Virtual and Augmented reality software applications will remain sectors to watch, following the popularity of smash hit video game Pokemon Go. Corporates and dealmakers are expected to pour millions into start-ups that are promising to turn new technologies into commercial opportunities in 2017.
After launching its HoloLens headset in the US, Microsoft announced plans to ship it across selected parts of Europe and Australia before the end of 2016. US space agency NASA, German industrials conglomerate ThyssenKrupp, aerospace and defence giant Airbus and automotive manufacturer Audi are among those experimenting with the device. Californian start-up rivals Daqri and Meta and Magic Leap are also bringing headsets to the market, as venture capital firms and businesses across a range of sectors invest millions in applications for these technologies.
Article by Merger Market
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