Mergermarket has released its Global M&A roundup report for the Technology, Media and Telecom (TMT) Sector for the first quarter (Q1) of 2017.
A few key findings include:
- Dealmaking across TMT in Q1 2017 dropped 17.6% in deal value, compared to the same period last year (695 deals, US$ 88.8bn), as 634 deals took place worth US$ 73.2bn
- The slowdown would suggest M&A activity targeting TMT, which hit all-time highs in 2015 and 2016, has passed its peak as buyers back away from record valuations and consolidation in multiple industries to Mergermarket intelligence. The sector accounted for 11% of global M&A activity, down from 21% during the whole of 2016
- TMT’s global slowdown was best reflected in the US, decreasing 25.6% by value (241 deals, US$ 26.1bn) versus Q1 2016 (249 deals, US$ 35.2bn). Following a mammoth quarter at the end of 2016 that included the AT&T/Time Warner (US$ 105bn) and Century Link/Level 3 (US$ 34.5bn) deals, the first three months of 2017 represented the lowest quarterly value since Q2 2012 (241 deals, US$ 26bn). This year’s largest US TMT deal saw Cisco acquire application intelligence software firm AppDynamics for US$ 3.7bn, just days before it was due to list on Nasdaq
Data analysis
Dealmaking across Technology, Media & Telecommunication (TMT) in Q1 2017 dropped 17.6% in deal value, compared to the same period last year (695 deals, US$ 88.8bn), as 634 deals took place worth US$ 73.2bn The slowdown would suggest M&A activity targeting TMT, which hit all-time highs in 2015 and 2016, has passed its peak as buyers back away from record valuations and consolidation in multiple industries to Mergermarket intelligence. The sector accounted for 11% of global M&A activity, down from 21% during the whole of 2016.
TMT’s global slowdown was best reflected in the US, decreasing 25.6% by value (241 deals, US$ 26.1bn) versus Q1 2016 (249 deals, US$ 35.2bn). Following a mammoth quarter at the end of 2016 that included the AT&T/Time Warner (US$ 105bn) and Century Link/Level 3 (US$ 34.5bn) deals, the first three months of 2017 represented the lowest quarterly value since Q2 2012 (241 deals, US$ 26bn). This year’s largest US TMT deal saw Cisco acquire application intelligence software firm AppDynamics for US$ 3.7bn, just days before it was due to list on Nasdaq.
Global TMT M&A
A lack of mega deals (> US$ 10bn) caused US TMT M&A to account for just 36% of global values across the sector – its lowest percentage since the 35% market share recorded during the whole of 2009 (753 deals, US$ 101.1bn). Elsewhere, Asia Pacific (excl. Japan) TMT activity was responsible for 39% of global TMT value (120 deals, US$ 28.9bn), almost twice the 20% it captured throughout 2016 (673 deals, US$ 135.8bn).
Asia Pacific’s figure was largely influenced by the US$ 12.7bn merger between Vodafone and Idea Cellular, which represented 43.9% of total TMT deal value in Asia Pacific, and 58% of those conducted within the Telecommunications space (38 deals, US$ 21.9bn). The sub-sector recorded a 66% surge by value compared to Q1 2016 (40 deals, US$ 13.2bn) and a 58.8% drop compared to Q4 2016 (46 deals, US$ 53.2bn).
Meanwhile, Media registered 103 deals worth US$ 6.3bn, its lowest quarterly value since Q2 2010 (92 deals, US$ 5.9bn), falling 66.7% in terms of value compared to Q1 2016 (135 deals, US$ 19bn).
The quarter saw 493 Technology deals take place worth US$ 45bn, slipping 20.6% in value when compared to Q1 2016 (520 deals, US$ 56.7bn) and representing the sector’s lowest total since Q1 2013 (342 deals, US$ 35.5bn). However, the overall value of deals targeting computer software companies (316 deals, US$ 28bn) rose 15% compared to Q1 2016 (314 deals, US$ 24.3bn), and represented 62.2% of Technology activity, up from 43% in Q1 2016. Enterprise software and services companies are expected to garner the attention of activists that will look to push them further into private equity hands, according to Mergermarket intelligence.
The twin issues of Brexit and the unpredictability of the Trump administration are likely to further influence activity, according to Mergermarket intelligence. Both situations are making players more reluctant to pull the trigger on transactions, particularly cross-border deals, later this year as more protectionist policies take hold.
Having advised on three of the top five TMT deals this quarter, Morgan Stanley and Goldman Sachs led the Financial Advisor League Table in first and second position by value and deal count having both been mandated on 13 deals worth US$ 25.9bn and US$ 25.2bn respectively.
After gaining a mandate on the largest deal of the quarter, AZB & Partners (six deals, US$ 13.9bn) stands top of the Legal Advisor Table, moving up from 55th place in Q1 2016. Meanwhile, Goodwin Procter led the Legal Advisor League Table by deal count, with 22 deals worth US$ 1.2bn recorded.
Drivers
Most TMT players are working on the assumption the Trump administration will look to repatriate overseas US money and take a more protectionist stance over tax revenue on corporate profits held overseas. This may lead to more US money chasing US assets, according to Mergermarket intelligence.
The Trump administration may also clamp down on cross-border activity through more stringent regulatory reviews via bodies including the Committee on Foreign Investment in the United States.
TMT players may additionally opt to engage in joint venture arrangements with local operators to circumvent these regulatory concerns and balance them with the need to access international capital flows and expertise. Disruptive technology continues to drive M&A with firms looking towards new movements including Internet of Things and driverless cars. Tech giants are especially keen to diversify their services beyond their traditional remit.
In March Intel made their eighth acquisition since the start of 2016 with a US$ 14.7bn deal for autonomous cars software developer, Mobileye. According to Mergermarket intelligence, Apple may also look to invest further into transportation, following its US$ 1bn deal with Didi Chixing last year.
The first quarter has also seen Cisco takeover AppDynamics, an app software firm for US$ 3.7bn while deal-hungry Softbank made moves into satellite services and investment management.
Targets centred around virtual reality, e-retailers, and companies providing software offerings via servers in remote data centres and through the cloud will be attractive, and are likely to push cross-border M&A, according to Mergermarket intelligence.
