Technology convergence drives M&A activity in 2019
By 2030, blockchain is expected to create $3.1 trillion in business value. By this time, 5G will have established its place as the new standard for wireless communications, extending the reach of data connectivity to make the internet truly ubiquitous for all. In only a short space of time, artificial intelligence has gone from a clunky concept with high potential to a staple in the growth strategies of a multitude of companies.
It doesn’t take much to see that we are living in a time of unprecedented digital disruption – one in which the dominance of a company in a particular market is based largely on their technological prowess. From customer experiences and cutting-edge products to data security and infrastructure, innovation is the word on the lips of leaders across almost every sector as we move towards the next industrial revolution.
Today, we can already see the beginnings of what has the potential to be a transformational decade ahead. The winners in the race to innovate will be those who capitalise on the right opportunities at the right time. Without the right resources, getting in at ground zero of the next “game-changer” and delivering on customer demand becomes a challenge. So, naturally, new opportunities born from developments in 5G, AI, Blockchain and the rise of everything-as-a-service (XaaS) are prompting a bout of M&A deal activity as market players gear up for the future.
Changes in the TMT ecosystem prompt deal activity
According to figures from the latest EY Global Capital Confidence Barometer, the buoyancy within the deal market witnessed in recent months is expected to continue as 58% of TMT executives plan to actively pursue M&A in the next 12 months — up from 42% in October 2018. Findings from their research further revealed that 73% expect the number of deal completions compared to the past 12 months to increase, up from 51% six months ago.
As per EY’s findings, all TMT executives are planning a seismic investment in technology this year as they look to become more efficient, reduce risks, create new customer-centric services, improve financial data and become the go-to provider in emerging fields. While megadeal activity in Q1 was dormant, the TMT industry saw significantly more deals than any other during the first half of the year, racking up 42 percent more transactions than the next busiest sector: industrials and chemicals.
Eager to stay one step ahead in a fast-changing landscape, the software and data subsector was the most active of all branches of the TMT industry boasting a total of 191 transactions completed (46% of total.) Within this arm of the market, providers of cloud-based software can be found at the purchasing end of a swathe of M&A deals as strategic buyers in the software game look to strengthen their in-house capabilities and enhance their product offering. SAP’s US$8m acquisition of Qualtrics International is one such example.
Despite perpetual uncertainty born from the volatile geopolitical climate and the threat of a No Deal Brexit, M&A in the UK TMT market has shown signs of positive momentum. In fact, reports have even placed the UK within the top five most investable countries for TMT acquirers ahead of the U.S, France and Germany. While predictions are difficult to make in the face of political ambiguity, recent trends assessed by Atlantra indicate that Brexit has not deterred acquirers from the UK market this year, with the volume of inbound TMT deals in Q1 2019 exceeding those that completed in Q1 2018.
5G becomes a key driver of corporate transactions
Last year, the efforts of telco providers to diversify their product offering and expand their customer-base were the fuel behind a number of strategic acquisitions in the market, particularly in sectors such as IoT, software and applications, analytics and cyber-security. This serves to illustrate how forward-thinking players in the telecommunications space are making active use of M&A deals as a measure to mitigate the risk of economic uncertainty and position themselves as leaders in the global competition for market share.
As we begin to see the commercial launch of 5G in markets across the globe, network operators are attempting to acquire the industry knowledge and infrastructure necessary to secure a competitive position in the race for the rollout of 5G. In fact, according to EY’s May 2019 Global Capital Confidence Barometer (the “EY Report”) access to technology, talent, and innovative start-ups was cited as the leading strategic driver behind pursuing acquisitions in the telecommunications sector over the next year.
Their research further illustrated how 5G has, in recent years, inspired a surge of deal activity with 55% of telecommunications executives now expecting to actively pursue acquisitions in the next year, a significant increase from the long-term average of 45% for the telecommunications sector. The consolidation in this industry will likely see the spotlight fixed on optical fibre companies to begin with, since it is they who own most of the network infrastructure that will play a leading role in the implementation of 5G.
Cybersecurity remains a priority in an evolving threat landscape
Meanwhile, the demand for network specialists in the face of fast-evolving cybersecurity threats continues to drive deal volume in the Infrastructure Services market. During Q1, Telco giant Orange acquired SecureLink for €15m and announced the acquisition of SecureData, the largest independent cybersecurity services provider in the UK. The cyber security takeover represents Orange’s largest acquisition since it bought up Airtel assets in Africa in 2016. Both acquisitions indicate the company’s acknowledgement of the increasing importance of data protection in light of their growth strategy.
In an era where technological capabilities are an essential engine for economic growth, tech giants with surplus cash to spend are actively capitalising on the emergence of cutting-edge solutions by means of acquisition. As we move into the next decade to meet a new industrial revolution, the race between large tech corporates to lead the market in game-changing technology will continue to power the momentum of M&A deals.
At 360 Law Group, we proudly advise our global network of corporate clients on public takeovers, private M&A, equity capital markets, private equity, joint ventures and commercial partnerships, disposals and corporate restructurings. For specialist advice and corporate law expertise, get in touch with our team today.
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