TMT M&A – Charting a course through choppy Brexit waters
August 11, 2016
Despite the general, somewhat uncertain reaction to the result of the UK’s referendum on leaving the EU, merger and acquisition (M&A) deal activity in the technology, media and telecommunications (TMT) sectors remains good.
The figures alone would suggest little change - there’s been a slight decline in the volume of deals over the past 12 months, but total deal value has grown and, as mentioned in my last quarterly TMT deals blog, deal volumes over the past 24 months remain strong.
Rolling four quarters comparison
(Four quarters to the end of Q2 for each of 2014, 2015 & 2016)
| Year to end Q2 2014 | Year to end Q2 2015 | Year to end Q2 2016 | |
| Volume | 69 | 90 | 75 |
| Total deal value | £13,691m | £42,086m | £43,580m |
| Average deal value | £198m | £468m | £581m |
Source: Thomson Reuters, Prequin & PwC analysis as at 30 June 2016
At first glance, the quarter-on-quarter analysis of Q2 2016 against Q1 2016 shows a fairly significant dip in total and average deal value. But there was a significant spike in total deal value in the first quarter of 2016, driven by a number of mega-deals (see my previous blog for details). In fact, if you compare the last quarter of 2015 with Q2 2016 there’s been a 6% uplift in deal volume a growth in total deal value of 70% from £4.6bn to £7.9bn and average deal size has risen from £273m to £440m.
Recent quarter on quarter comparison
| Q1 2016 | Q2 2016 | Variance | |
| Volume | 16 | 18 | 13% |
| Total deal value | £20,920m | £7,912m | -62% |
| Average deal value | £1,308m | £440m | -66% |
Source: Thomson Reuters, Prequin & PwC analysis as at 30 June 2016
Major deals in Q2 2016 included the £5.69bn acquisition of Cable & Wireless Communications Plc by Liberty Global Plc, the sale of a 65% stake in media company MP & Silva Ltd to Shanghai Jinxin Investment Advisory LLP for £452m, Micro Focus International Plc’s £375m acquisition of Serena Software Inc, the sale of OpenBet Ltd to NYX Gaming Group Ltd for £270m and ARM Holdings Plc’s acquisition of Apical for £241m.
TMT M&A strong despite Brexit
The results of the UK’s EU referendum and forthcoming Brexit have inevitably thrown up a few questions and have presented new challenges to getting a deal done. I think that the TMT M&A market would probably have accelerated further than it has in Q2 had we not had the vote or if the UK had voted to stay in the EU. This is because the TMT deals market had and continues to have strong momentum and there has been a good level of investor interest in the sector. Natural uncertainty about the short to medium term future has dampened deal activity a little.
Forthcoming Brexit has introduced some new questions and considerations that investors and vendors need to think about and these have extended deal closing periods. But, given the underlying momentum in the market, the net effect is that we haven’t seen a slowdown in activity levels.
TMT subsectors
I still expect to see a strong focus on digital and cyber security, infrastructure and education content but I also expect to see a higher level of scrutiny applied to deals taking place in these sectors for the reasons mentioned.
The future
To get deals over the line in the short to medium term businesses need to have a clear post-Brexit strategy. Similarly investors will need to apply a clearer lens to potential deals to better assess and discern the value they will derive from a deal.
In summary, the TMT market remains attractive to investors, forthcoming Brexit means that new questions are being introduced but, overall we’re still expecting to see good deals crossing the line.
Do get in touch if you’d like to discuss any of the points I’ve raised here.
