As experts in Media & Technology M&A, we were asked to comment on the drivers of the latest wave of transactions in the sector for International Financing Review’s latest TMT M&A Databook.
We explain how the conjunction of two key trends, now reaching maturity, and the latest macro-economic developments, have combined to drive Media & Technology M&A:
The maturity of two key trends, at a turning point in the economic cycle, is driving the current wave of M&A activity in the TMT sector.
Maturity of Enterprise/Cloud and Consumer/Mobile Trends
Both enterprise/cloud and consumer/mobile technology markets have matured, and neither offers the organic growth prospects it has done over the past five to seven years.
Meanwhile, established players have large, defensible positions, and barriers to entry are formidable. Organic growth is therefore difficult, and new markets largely blocked.
Defensive, Opportunistic, Consolidation
In this context, defensive consolidation (e.g., Microsoft/Nokia), stepping out of the public eye to respond to changes in the marketplace (Dell) and consolidation of ownership (Verizon/Vodafone) have taken over as the key drivers of large-scale M&A activity. BlackBerry, a victim of changes in both the enterprise and consumer markets, is unlikely to remain independent for long, and will be an opportunistic bolt-on for an established player.
The next shift will be away from defensive moves, towards M&A as a driver of growth. We expect this to become visible quite quickly, and certainly over the next 12 to 18months.
The deals themselves will be smaller but more numerous, as activity picks up in the mid-market – the traditional engine of growth and development.
The major corporate acquirers in the mid-market have been through a period of intensive strategic review over the past couple of years.
They now have greater strategic clarity and an increased willingness to consider growth by acquisition – be it of technology, talent, or market entry. And they have the cash on the balance sheet and the financing available to make these deals happen.
This combination of growth ambitions, strategic rationale, and available capital will drive increasing M&A activity in the TMT sector and especially in the mid-market.