How are we going to prepare for the robot revolution?
The Singularity will be here in 30 years, according to Masayoshi Son. To prepare, the CEO of SoftBank and billionaire investor launched his Vision Fund last year, which closed with US$ 93bn, and has been rapidly buying up stakes in cutting edge ventures ever since.
Numerous investors have followed suit. In Q1-Q3 2017, though the total disclosed value of dealmaking in Technology, Media & Telecommunications (TMT) fell by almost a quarter to US$ 299.5bn compared to US$ 391.1bn during the same period last year, overall deal count remained more or less steady at 2,370 transactions, while falling in most other sectors.
Much of this boost was driven by Technology transactions. Where Media and Telecom lost ground in terms of volume as both sectors struggle to reinvent themselves in a rapidly digitizing world, Tech made up the difference, with such gains likely to continue through the rest of the year.
The SoftBank Model
SoftBank’s buys have been fairly representative of a market share grab taking place throughout the industry, and have ranged from medical testing start-ups (Guardant Health) to budding autonomous vehicle companies (Nauto) to artificial intelligence (Appier; Petuum) and robotics firms (Boston Dynamics; Schaft). Investments have especially picked up following the Vision Fund’s formation.
To date this year, the company has already engaged in a record 27 transactions, more than 3x the number for the whole of last year, and with only one transaction having lapsed – a US$ 1.8bn attempt to acquire Luxembourg-based satellite provider Intelsat in the first half of the year.
Deals that have closed over just the last few months have included such ventures as a US$ 250m bid with Accel for popular messaging platform Slack, a US$ 114m bid with Qualcomm Ventures for autonomous robot company Brain Corporation, a bid as part of a consortium of sponsors for an undisclosed consideration of indoor farming start-up Plenty, and the full-on acquisition of US cyberdefense company Cybereason, also for an undisclosed consideration, among many others.
Most of SoftBank’s bids have been as part of various consortia – altogether, they have taken stakes in companies worth a combined US$ 22bn.
Chips in crisis
SoftBank’s buying frenzy was not the only notable activity out of Japan this year. In September, Toshiba Corporation agreed to sell a 59.8% stake in its prized microchip unit for US$ 10.6bn (with an enterprise value of US$ 17.8bn) to a consortium led by Bain Capital and which included such investors as Apple, Dell, and Kingston Technology after struggling to stem the losses from its failed investment in the nuclear unit of US-based Westinghouse.
However, Toshiba’s SanDisk joint venture partner Western Digital, which had previously been part of a potential bid for the microchip unit along with KKR prior to the Bain deal being inked, sought to block the latter transaction claiming Toshiba’s violation of the terms of an arbitration settlement last summer. Such terms had stated that any sale by Toshiba of its microchip unit was to be publicly disclosed to Western Digital at least two weeks before signing.
Cross-border chip deals between APAC and the US also faced a different kind of hurdle in the case of Chinese buys of US semiconductors firms. In September, US President Donald Trump blocked China-backed, US-based Canyon Bridge Capital Partners’ US$ 1.2bn takeover bid of Lattice Semiconductor Corporation following a recommendation to do so by the Committee on Foreign Investment in the US (CFIUS) due to national security concerns, the second of two such lapsed semiconductors transactions between China and the US to date this year worth a total of US$ 3.1bn. The committee had previously blocked Ingenic Semiconductor’s US$ 1.8bn bid for OmniVision Technologies and a 94.3% stake in China-based Superpix Micro Technology.
Aside from these, so far this year, Chinese firms have signed deals to acquire 48 US companies across all sectors for a combined US$ 7.2bn, four of which are in the semiconductor space and altogether worth US$ 1.2bn.
US leads global activity
Despite this, APAC’s dealmaking activity in the TMT sector has grown, setting a regional record of a 35% market share by value already in the first three quarters of the year compared to all previous years in full. Total deal value reached US$ 103.4bn and 515 deals, with the region also capturing the three out of the top five transactions for the period globally.
However, it was the US, home to Silicon Valley and the entertainment industry, that ranked first across the globe, once again leading global TMT activity by capturing 43% of market share by value with 892 deals worth US$ 127.9bn, and claiming the period’s top deal – Discovery Communications’ US$ 14.4bn acquisition of Scripps Networks Interactive.
Europe, in turn, recorded not an insignificant number of deals, just behind the US with 813 transactions, though with smaller price tags – an aggregate US$ 47.4bn, and reflecting a market share by value of 16%. The region, in the midst of Brexit negotiations, is on track to end the year with a record low market share.
Let the streaming wars begin
Technology’s growing prevalence in just about everything has also had an undeniable impact on neighboring sectors such as Media. With online streaming and the possibility of seemingly endless content available 24/7, the industry has seen added pressure to evolve beyond the traditional studios and platforms of the past. Subscription streaming services have chipped away at the market share of traditional cable and entertainment giants, forcing them to consider adopting similar services.
Industry disruptor Netflix recorded a 32.3% increase in revenue to US$ 8.4bn in the first three quarters of the year over the same period in 2016, according to its latest 10-Q filing with the SEC, and made its first-ever acquisition in August, of UK-based comic book company Millarworld, with further plans to boost its original content.
One day after the Millarworld acquisition, Disney announced that it would be pulling most of its movies from Netflix, including the Star Wars franchise and its Disney-branded and Pixar content, with the intent to launch its own streaming service as well as boost sports channel ESPN over the next couple of years. Disney already owns stakes in Vice Media and Netflix rival Hulu, and recently bought a 42% stake, in addition to the 33% it already owned, in Major League Baseball online video provider BAMTech Media for US$ 1.6bn.
Other notable Disney investments made recently include an undisclosed stake in SambaTV, a smart television analytics app, and interactive storytelling platform Playbuzz, also for an undisclosed stake.
Later in the month, Silicon Valley giants Apple and Facebook entered the fray, with the former announcing plans to invest US$ 1bn in purchasing and developing original online content over the next year and the latter launching its video streaming platform Facebook Watch in early September, which includes some original content and allows users to watch full shows instead of just scrolling through clips.
As competition in the streaming space heats up, implications for the Media sector could mean a continued grab for original content and digital applications.
Drivers & Heat chart
based on potential companies for sale
According to Mergermarket intelligence, an area that could see more investment on the horizon is the emerging FinTech market in Central & South America. Following a wave of payment startups, the next space to watch could be digital peer-to-peer lending platforms, particularly in Mexico and Brazil.
Another area that could see more dealmaking in the near future is the SpaceTech industry. Facebook has already come out and said that it is interested in building an “internet of the sky” to achieve scale while providing access to those in developing countries. Further, growing cybersecurity concerns, intelligence needs, and navigational capabilities could spur more interest in companies that provide such services.
Finally, as companies like Amazon, Walmart, and Target continue to compete for customers and grow their market shares in the ecommerce and retail industries, the logistics technology space could see an uptick in activity as businesses strive to deliver more efficiently to customers who are increasingly buying goods online. Tracking, delivery, and payment processing services could all be potential areas for investment.
Article by Merger Market