M&A Strategies in the TMT Landscape in 2024
In terms of dealmaking in the technology, media, and telecoms (TMT) industry, there are reasons to be optimistic in 2024. An increase in TMT deal activity is anticipated in 2024 owing to developments in generative AI and other new technologies, increased loan rate certainty, record levels of cash invested by private equity (PE), and pent-up demand for dealmaking.
Software Based Business
Due to the nature of its subscription-based business models, software continues to draw interest from investors, especially from PE players, who currently make up about two thirds of all software deals. In the current lower-growth climate, investors will nevertheless find the software sector appealing due to its more predictable cash flows and recurring revenues. Consequently, we anticipate that in 2024, software will still be the primary focus of technology dealmaking.
Telecom Models re-emerge
Consolidation and the reappearance of the Netco model, in which businesses own, run, and lease network equipment to telcos and service providers, are reshaping telecom market structures in an effort to exploit synergies, mutualize costs, and draw in outside investment. It is anticipated that these trends will manifest themselves in the fixed and mobile markets, especially in Europe.
Streaming Consolidation
Streaming firms may now see more information about customer preferences, including the number of platforms they are ready to subscribe to, their penetration in key markets, and the content choices that influence their behaviour, thanks to greater data accessibility. The trends suggest that the ecosystem is ready for consolidation, and in the upcoming six to twelve months, some of the markets’ streamers should start looking for strategic partners.
Regulatory Implications For M&A in TMT
A few of the most significant M&A stories in 2023 focused on regulatory scrutiny as authorities worldwide keep looking into and acting upon the findings. Numerous TMT transactions have come under intense examination, especially from US, UK, and EU regulators who are worried about Big Tech acquisitions that involve start-ups viewed as potential competitors or increase the market strength of established businesses.
While some significant transactions have been successful in gaining regulatory approval, others have not. As an example, Meta completed the US$400 million acquisition of Within Unlimited after more than a year of obtaining the required permits. In a similar manner, Microsoft navigated the regulatory framework to secure clearance for its US$68.7 billion acquisition of Activision Blizzard. The Digital Markets Act, which regulators in the EU recently introduced, intends to limit Big Tech’s dominance and anti-competitive activity.
Furthermore, Google was mandated to sell a portion of its ad-tech company by EU regulators. We anticipate that in 2024, ongoing regulatory pressure would stifle interest in M&A and lengthen the time it takes to close major mergers.
IPOs and De-listings
Pent-up demand for fresh investment opportunities exists, and some of these will probably hit the market in 2024 given the increasing backlog of tech and other companies waiting to go public. However, there will be less time for IPOs because of impending elections in the US, the UK, and a few other nations. TMT businesses have concentrated on fortifying their financials and creating alternative scenarios, including possible sales, while they wait for a more accommodating market.
Not only is it difficult for internet businesses to raise money in the public equity markets, but the industry’s dismal post-IPO performance has resulted in some significant valuation falls and an increasing number of public-to-private swaps.
Conclusion
Technology, media, and telecommunications will continue to be important industries to keep an eye on when it comes to M&A in the upcoming years because of their dynamic nature and potential for disruption. Given the historical significance of programmatic M&A in generating value, we anticipate that trend to continue.
On the other hand, a lot of companies have grown more intricate at the same time, encompassing wide geographic stretches and diverse product lines. As a result, the most astute players will review their portfolios and carry out calculated divestitures in addition to keeping an eye out for new goods, services, and markets. Buyers are drawn to crucial qualities such as income visibility and the global push towards digital transformation.
