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Why TMT M&A Has Been The Top Sector To Watch This Year

By Guest Post. Originally published at ValueWalk.

Against a backdrop of tariffs, trade wars, and media wars, Technology, Media and Telecom (TMT) has arguably been the top sector to watch in the year to date. Among the most high profile events in just the last couple of months, the sector has witnessed the collapse of the NXP/Qualcomm transaction as a result of trade tensions between China and the US, as well as Comcast abandoning its bid for Fox in an effort to focus more on its bid for Sky in its growing battles with Disney over market share.


Q2 hedge fund letters, conference, scoops etc

Despite all of the upheaval, the sector grew in the first half of the year, according to Mergermarket, an Acuris company, data through the end of H1 2018, with total deal value for the sector globally reaching US$ 371.1bn, a 107% jump in value compared to US$ 2017 (US$ 179.4bn).

Other key findings include:

  • Technology accounted for the largest share of TMT’s total deal value – 46.2% with US$ 171.5bn, while Tech’s deal count of 1,329 transactions was responsible for 78.5% of TMT’s total volume for the period
  • Telecom accounted for the second-largest share of deal value with US$ 111.2bn, or 35.1%, and 59 transactions, or 3.5% of volume. The sub-sector was boosted by the largest deal of the period, Sprint’s US$ 58.9bn bid for T-Mobile, which accounted for 53% of total value.

Data Analysis

TMT Total Deal Value

Warring Among Major Firms Spurs Higher Price Tags in H1 2018

The Technology, Media & Telecom (TMT) sector, host to not only innovative disruption but also warring bids from some of the largest firms in the world, grew in value despite coming under heavy fire in the first half of 2018, finding itself at the center of data hacking scandals, election meddling, cross-border trade tensions, and some of the biggest battles over know-how and market share on record.

By the end of H1 2018, global TMT values had reached US$ 371.1bn and 1,693 deals, representing a 19% share of global M&A, nearly surpassing H1 2015’s record high of US$ 383bn which represented a market share of 21%. Total deal value in the sector also marked a 107% jump compared to figures from H1 2017 (US$ 179.4bn), though deal count fell by 53 transactions (from 1,746). Technology accounted for the largest share of TMT’s total deal value – 46.2% with US$ 171.5bn, while Tech’s deal count of 1,329 transactions was responsible for 78.5% of TMT’s total volume for the period.

Telecom accounted for the second-largest share of deal value with US$ 111.2bn, or 35.1%, and 59 transactions, or 3.5% of volume. The sub-sector was boosted by the largest deal of the period, Sprint’s US$ 58.9bn bid for T-Mobile, which accounted for 53% of total value.

Media, the sub-sector that arguably fell under the spotlight the most in H1 2018, registered US$ 88.4bn in total deal value and 305 transactions, or 27.9% of TMT’s total value and 18% of total volume.

US Still Leads Global TMT Activity, Followed by Europe

Geographically, the US led in market share with US$ 143.9bn and 646 deals, representing a 39% share of global TMT value, with Europe on its heels with US$ 129.8bn and 569 deals, representing a 35% share of value. Nearly a third of Europe’s total value was due to Comcast’s US$ 40.7bn bid for Sky Plc, a bid which is likely to increase in H2 2018 as Comcast’s war with Disney heats up over media assets. Asia-Pacific, though behind both regions in terms of market share, recorded US$ 86.3bn and 376 deals, representing a 23.3% share of total value, boosted by two mega-deals that took place in India: Walmart’s US$ 16bn bid for a 77% stake in Flipkart and Bharti Infratel’s US$ 10.7bn bid for Indus Towers.

Media Wars! And the Netflix Effect

The media world held its breath in the first half of 2018 with all eyes on the AT&T/Time Warner and Department of Justice antitrust trial. Concluding the more than year-and-a-half long case, US district court judge Richard Leon ruled unconditionally that the merger should be allowed to move forward, with the DoJ not having adequately proved their case as to why the deal should have been blocked. Implications appear to be broad for all dealmakers now that the green light has been given, with the decision taken as a sign that future vertical mergers may be more or less allowed to proceed.

The day after the ruling, Comcast approached Twenty-first Century Fox’s board with a US$77.4bn offer, prompting a bidding war with Disney. In turn, the latter increased its original US$ 68.4bn bid for Fox from last December to US$ 84.1bn, resulting in a 28.6% premium on the original offer price per share.

Disney has since secured the needed approvals to close with Fox, which led Comcast to withdraw its offer and instead focus on its efforts to acquire UK-based Sky Plc, having already made a US$ 46.2bn bid in April for the British media company. An updated offer is expected in the near future.

TMT Total Deal Value

The Sky’s the Limit

Such a move, seen by Comcast as necessary given Disney’s recent activities, has only intensified the media M&A drama of recent months. Comcast’s strategy to stay competitive with Disney must incude the acquisition of Sky or its equivalent. To add more to the matter, Fox is already the owner of a 30.1% stake in Sky, and in December 2016 launched a US$ 26.8bn offer for the remaining 60.9% – two months after AT&T announced its US$ 105bn bid for Time Warner and preceding Disney’s decision to buy Fox by one year.

Following the close of the Disney/Fox deal, Disney would then own Fox’s Sky stake, further complicating things for Comcast.

Such events are indicative of the immense pressure felt by the dominant media companies from the likes of Netflix, which could have spillover effects into the rest of the entertainment industry.

Technology: Also a Disruptor of Geopolitics

While the government lost its suit to block the AT&T/Time Warner deal, it had more success when it came to cross-border activity. On the broader economic stage, H1 2018 saw a flurry of tariffs enacted from steel and aluminum to soybeans and natural gas, affecting not only China but also traditional US trading partners such as Canada and the European Union.

On the M&A front, President Trump blocked Singapore-based Broadcom (though the firm has now redomiciled to California) in its bid for US-based Qualcomm. Months later, the latter’s US$ 51.9bn bid for Netherlands-based NXP terminated after failing to receive Chinese regulatory approval by the deal’s deadline, the last of nine regionals needed.

One deal that did close in H1 2018 was the US$ 10.6bn purchase of Toshiba’s microchip unit by a consortium led by Bain Capital and including Apple, among others, announced in Q3 2017. Though the target’s technology has not been nearly as controversial from an economic or national security standpoint as the 5G involved in the Qualcomm/ Broadcom transaction, the deal looked for some time as though it might become a pawn in transpacific negotiations after the White House’s block of the latter. Ultimately, Chinese authorities approved the deal and also revived its review of NXP/Qualcomm, around the same time that President Trump tweeted his intention to work with Beijing to help Chinese telecom firm ZTE. More recent turns in the ensuing trade drama, however, appear to have had an effect on cross-border M&A, e.g. in the collapse of NXP/Qualcomm deal.

Top deals

TMT Total Deal Value

League tables

TMT Total Deal Value

The post Why TMT M&A Has Been The Top Sector To Watch This Year appeared first on ValueWalk.

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