EMEA- Technology, Media and Telecommunication Industry Analysis

Analysts: Nicolas Bojenko (University of Sussex), Max Rosmuller (University of St. Gallen)

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Technology, Media and Telecommunication Industry


TMT Accelerated by Covid-19


As with most industries, the Covid-19 pandemic slowed down growth and M&A activity in the technology, media and telecommunications (TMT) industry through the first half of 2020, albeit slightly. However, deal making accelerated as optimism and confidence returned in Q3 and Q4 of 2020. The TMT industry in particular saw a sharp rise in deal values, mostly due to an increasing trend in TMT adoption across various businesses and industries. This trend was catalyzed by the Covid-19 pandemic, which forced businesses around the world to adopt technology solutions at a rapid pace. Some technology sub-sectors that have benefitted from this accelerated trend are particularly cloud computing, SaaS, e-commerce and IT security. Additionally, growth in remote work and stay-at-home restrictions saw e-commerce, video conferencing, streaming services and gaming benefit from an increase in user engagement. Due to this strong position, the TMT sector saw increased M&A activity, high valuations, increased venture capital (VC) funding, and high levels of IPOs throughout the second half of 2020.


M&A Activity Overview


A total of 936 TMT deals took place throughout the EMEA region in Q3 of 2020, the majority being related to the technology sub-sector. Deal volume increased in Q4 with a total of 1,093 deals, higher than any quarterly levels in 2019. Deal values also reached highs, with a value of $107.3 billion in Q4. In total, 2029 TMT deals occurred in the second half of 2020, compared to 1863 deals in the second half of 2019. More notably, TMT deal values reached a total of $189.2 billion in H2 of 2020, constituting an increase of 105% over H2 2019 levels.



TMT Sectors Showing High Growth Potential as Covid-19 Matures


Work From Home (WFH)

Clearly, 2020 was the year of steep learning curves when it came to virtual learning and virtual work. In the span of a month, businesses, schools and universities alike had to turn 180 degrees and adapt to a new way of communication, a virtual one. Zoom, a company with virtual video-conferencing software, became a household name.


Semiconductor


Due to increased demand for technology arising from the Covid-19 pandemic, producers and suppliers of hardware like semiconductors became essential players. In the Netherlands, ASML and ASMI, two of Europe’s largest semiconductor companies, saw their share price increase by 33% and 32% respectively from July 2020 to December 2020. The attractiveness of the semiconductor sector mirrors companies’ chase towards memory-intensive areas such as 5G, cloud computing, data centers and internet of things (IoT). This chase only accelerated as working became increasingly digitized. In terms of M&A, some megadeals surrounding the semiconductor space were announced in the second half of 2020, one of the most notable being Nvidia’s plans to acquire UK-based ARM for $40 billion in a deal that would create the world’s premier computing company for the age of AI.


Food delivery


As the gastronomy sector came to a halt in 2020, restaurants switched to takeaway and delivery business models to survive. Platforms like Uber Eats and Delivery.com became essential for consumers and restaurants alike, providing an effortless means for restaurants to continue to provide for consumers. The fast-paced adoption of these services required consolidation, to wipe out competition in a competitive market and reduce the costs of acquiring and retaining customers. Amsterdam-based Just Eat Takeaway therefore announced its plans to acquire GrubHub in an all-share deal for an enterprise value of $7.3 billion. The combined operation will have over 70 million active customers globally and will create the world’s largest food delivery business outside of China.


Video games


In the media & entertainment space, the video game sector has seen strong figures throughout 2020. With the world’s population confined in their homes, it is no wonder that demand and interest in the video game industry has soared. CD Projekt, a Polish video game developer, saw its Q3 2020 revenues increase by 47.5% over 2019 figures. Growth in mobile has also been an attractive driver for M&A in the video gaming sector, leading to various acquisitions in the space. In August, Zynga, the maker of Farmville, acquired Turkish-based mobile game developer Rollic in a deal worth $168 million. The mobile game segment is forecasted to grow at a CAGR of over 10% throughout the next 5 years and reach a market volume of $160 billion by 2025.


Telecommunications


Due to the acceleration of digital trends throughout 2020, various opportunities arose for telecommunications companies (telcos). In terms of network connectivity and technology infrastructure, trends like 5G, artificial intelligence, cloud and IoT are transforming the telecommunications industry. More specifically, telco companies are evaluating their asset portfolios to identify potential divestitures but also to identify potential opportunities in terms of M&A in order to scale network capacity and accelerate the rollout of 5G. Such an opportunity is exactly what Liberty Global identified when it acquired Swiss telco company Sunrise for $7.6 billion in November of 2020. As a result of the transaction, UPC, another Swiss telco company owned by Liberty Global, will integrate with Sunrise to create Switzerland’s leading gigabit fiber optic cable network and leverage Sunrise’s 5G to improve connectivity for Swiss customers.



Conclusion & Forward-Looking Remarks


As the initial impact of Covid-19 wore down, the pandemic began to differentiate between winners and losers. As we have seen, the pandemic largely benefited the TMT industry as a whole by underscoring the importance of digital connectivity and Innovation. The technology sub-sector in particular saw a sharp rise in both deal volumes and values as 2020 came to an end. This trend is likely to continue far beyond 2020: in a survey of 230 M&A stakeholders including corporate executives and private equity firms, respondents were asked which sector they believe will witness the most M&A activity in Europe through 2021. The TMT industry took the top spot, with 68% of the respondents leaning towards high levels of M&A activity, followed by Pharma, Medical and Biotech with 38%. We believe that we are still at the start of the hill when it comes to TMT, and with the future bringing ever-more technological advancements and opportunities, the TMT industry will continue to develop strongly. We believe that with this strong development, M&A activity will continue to play a big role in the TMT industry throughout the coming decade.


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