Tech and Telecoms M&A

Technology and Telecoms M&A: what does the future hold?

Technology and Telecoms M&A: what does the future hold?

M&A deal volume and value showed strong performance in 2017, and are forecasted to continue in the same vein into the latter half of 2018. How do technology and telecoms fit into this overall trend, particularly in relation to SMEs and emerging mid-market companies?

Drivers for M&A

The Technology Sector continues to be a major driving force in M&A. A recent survey of tech executives done by EY showed that 57% of respondents in the tech industry expected to pursue M&A in 2018. Meanwhile, 83% of respondents expressed confidence in global economic growth for the tech sector.

Technology and Telecoms M&A allows for enhanced access to innovation and new technologies, which was the top motivator (along with growing market share) for respondents in the above survey. In addition, acquisitions will likely provide access to the digital age’s goldmine: user data, increasingly used to make better business decisions and drive sales productivity.

With more and more businesses seeking to digitise operations (including Telecoms), while new technologies continue to disrupt entire sectors (e.g. fintech), there is a big appetite for tech investments. A popular route is acquiring thriving and innovative tech startups; Apple’s acquisition of Shazam is a high-profile example from late 2017.

The interest goes both ways: mid-level technology companies themselves are leveraging M&A for growth as they look to further disrupt traditional industries and business models. Meanwhile, the traditional companies are looking to M&A as a means of defending their positions by acquiring technologies and innovations to stay ahead of the curve.

More investment expected in Tech and Telecoms

According to KPMG’s M&A Predictor, corporate capacity to fund M&A growth will increase in both the Technology and Telecommunications sectors. Q1 2018 activity for both supports this prediction, with total deal value reaching US$247 billion, double that of Q1 2017.

Meanwhile, private equity has become increasingly important in the buying of Technology companies worldwide over the last five years, with capital and cheap debt available in abundance. Whether this continues in 2018 will depend on interest rates and tax legislation affecting private equity funds.

Looking to the future

The upward trend in Technology and Telecoms M&A does not look set to slow down soon, and convergence is likely to continue, with non-tech companies acquiring tech companies, and vice-versa. The question is more about which technologies are likely to attract the most interest and investment going forward, and how these deals are managed.  An expert M&A advisor who is experienced in the tech sector combined with the strategic mindset to help businesses leaders navigate the complexities of M&A is essential.

Currently, there is a lot of noise around AI, with companies big and small across industries keen to integrate AI technology into their products. Acquiring AI startups has been popular, with Google leading the way at 14 acquisitions so far, while China is doing the same, looking to be a leader in the area. There is also budding interest in VR and AR technologies, which, currently in their infancy, are attracting more investment than M&A, with year-on-year growth of investment since 2013.

Developments in Telecoms including the coming of 5G, network infrastructure developments, and growth potential in the areas of content, video and Cloud technologies demonstrate there are real opportunities for businesses.

As changes evolve, more M&A activity is likely as focus shifts from growth and development to consolidation and dominance.

If you are operating in the tech or telecoms sector and a looking for strategic advice on how to grow or sell your business. Contact us today for a confidential conversation with one of our lead advisors. 

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