Gordon Carstairs
Deal Advisory Partner - M&A
Tech, Media and Telecoms M&A in 2024
How it started
In 2023, the Tech, Media, and Telecoms (TMT) sector braced for a year of transformation, driven by the relentless pace of technological advancement, typified by the commercial use of GenAI, and the shifting economic landscape. Expectations were cautiously optimistic. Activity was driven by the strategic priorities of digital transformation, cloud storage, and data services.
Reality was in line with anticipation. Companies would need to adapt rapidly to maintain relevance and capitalise on the burgeoning data economy. The focus was on innovation with an eye on security and cloud transformation as key drivers of growth. In the UK, software dominated the deals market.
Deal volumes in both the UK and globally had quite substantially declined from their 2021 highs. This was reflective of the tough deal environment and volatile macro-economic and political environment. Nonetheless, deal volumes in 2023 did exceed pre-COVID levels and we predicted a slow recovery in 2024.
In 2024, we expected a slow and steady increase in deals volumes as interest rates stabilised but without expecting deal volumes to reach the highs of 2021. As 2024 progresses, we are optimistic and expect an uplift in TMT M&A activity.
How It's Going: The Reality of Q1 2024
The TMT M&A landscape has shifted broadly in line with our forecasts. It has shown its resilience in the face of macro-economic pressures with some areas of IT services continuing to grow. Security services, cloud transformation, and data services remain in high demand, aligning with ongoing digital transformation programmes. The use of Big Data continues to grow exponentially, underscoring the critical need for robust data management and analytics capabilities.
On the other hand, businesses are scrutinising IT expenditure more closely which is leading to longer sales cycles and more discerning investment approaches. Companies are prioritising digital transformation initiatives that promise operational efficiencies and cost savings over those with longer-term revenue potential.
The public sector remains committed to IT projects that promise efficiency gains but is also reallocating funds towards defence. Private sector IT departments are similarly inclined to maximise budget utilisation as the financial year draws to a close. Interestingly, some markets are witnessing a shift towards direct vendor engagement, bypassing resellers to avoid mark-ups. Yet, value-adding resellers that offer comprehensive solutions and foster genuine partnerships continue to thrive. Their emphasis on relationship investment is also valued by their customers.
The strong demand for high-calibre TMT professionals continues. The limited talent pool highlights the need for strategic talent acquisition and retention.
We remain cautiously optimistic with regards to a deals bounce back. Owners/management so far appear to be more comfortable about selling and investors are more positive about investing than last year. So far in 2024, we have seen a slow return of activity with investors still being careful. There is still uncertainty looming around macro-economic factors such as interest rates and political change with key elections in the UK, USA and the EU.
We expect (based on Q1 2024 results) a slow return in deal activity as confidence and stability improves. As interest rates stabilise and political uncertainties are settled, we would expect deal volumes to trend upwards, further driven by the abundance of private equity “dry powder” which will bolster deal flow and enhance trading conditions. As of 2024, it is estimated that buyout funds alone hold USD 1.2 trillion in dry powder. However, due to economic and political uncertainties still being present, it is likely that deal values themselves will not necessarily increase linearly with deal volumes. The volatile economic markets of the past few years have resulted in several distressed assets in the market, and many investors are expected to negotiate downwards on price.
Looking Ahead: Finding Success in Stability
In the current economic climate, where headwinds are strong and the market is unpredictable, there's a new measure of success—stability.
The adage "flat is the new growth" resonates more than ever, as maintaining a steady course is an achievement in itself. For the TMT sector, this means that staying afloat amidst the turbulence is a testament to the industry's agility and the strategic foresight of its leaders. As we continue to navigate through these challenging times, it's important to remember that resilience is built through adaptability and a steadfast commitment to core business values.
The TMT industry's ability to remain responsive to changing market demands, while continuing to innovate and drive efficiencies, will be the cornerstone of enduring success.
While the road ahead may be uncertain, the TMT sector's journey from 2023 to the present day demonstrates a remarkable capacity to endure and evolve.