The TMT industry is constantly challenged with the need to innovate and adapt to technological disruptions. As more companies are leaning on deal-making as the fastest route for digital transformation, TMT deal activity is bound to grow.
2019 was characterized by several challenges given heightened economic and political uncertainties. Despite continued concerns around trade wars, geopolitical tensions, Brexit and the uncertainty of a looming economic recession, deal activity in the TMT industry continued to stay strong.
Middle market transactions on our platform were diverse industry-wise, however, TMT was the largest contributor to our overall deal volume in 2019.
Increased focus on digital transformation
As per KPMG the overall middle-market aggregate deal value for the TMT industry reached $30.4 billion in Q2’19, compared to $26.8 billion in Q2’18.
The TMT industry is constantly challenged with the need to innovate and adapt to technological disruptions. Emerging technologies continue to gain traction as companies are increasing investments to improve the customer experience, create new products and services, and reduce risk. Apart from disruptive technology, traditional TMT trends such as the need for expansion, improving efficiencies, and competition for technology and talent continues to drive deal activity.
The trend is evident across sectors and geographies and is just not restricted within the TMT industry. As more companies are leaning on deal-making as the fastest route for digital transformation, TMT deal activity is bound to grow. M&A’s are proving to be a strategic tool for those seeking to acquire new technology and production capabilities or to grow into new markets and business verticals. Whereas, there is an increased focus of Private Equity firms on emerging technologies.
More than 50% of the respondents who participated in EY’s Global Capital Confidence Barometer with representations from 14 sectors, said they are allocating between 25 – 50% of their capital gains on digital technology. The same survey showed that companies are more focused on external investments rather than building in-house capabilities to match up with a competitive landscape that is changing at an ever-increasing pace.
The trend should continue in 2020 as BakerMcKenzie forecasts technological disruption across all sectors to be one of the key drivers for deal activities in the future.
The telecom industry is evolving with migration to 5G networks, and increased focus on new technologies like Artificial Intelligence, Automation and Data Analytics to unlock new opportunities. At the same time, the media and entertainment industry is trying to reinvent its business to adapt to the change in content consumption patterns and the increased availability of data.
Key trends driving TMT deal activity
The focus on digital transformation is increasing the volume of data TMT companies need to process, hence driving demand for machine learning, cloud, and edge computing. Deloitte predicts more than 740 million edge AI chips will be sold in 2020 and will find their way into consumer devices such as smartphones, tablets, etc. and enterprise markets such as cameras and sensors. This will bring AI out of the data centers onto local devices and address issues related to data security and privacy, speed and usability.
As digitization ramps up so do the exposure to cyber risks. As attacks in cyberspace are becoming more complicated, companies are realigning their resources to upgrade their IT infrastructures and are making significant investments to protect their privacy and identify harmful network activities. The dependency on Artificial Intelligence is expected to continue as the number of product offerings increases.
Data analytics has become an important part of the end-to-end decision-making process and companies across all sectors are focused on driving value from data and eventually monetizing it. Conventional cost-cutting methods are being replaced by analytics-driven productivity solutions. The data and information service industry is witnessing the advent of several new technologies, with blockchain being a prominent example. Analytics too is moving towards increased automation as Gartner predicts in its Top 10 Data and Analytics Trends.
Internet of Things (IoT)
Out of several other emerging technologies, TMT is expected to be the most impacted by IoT, as internet-connected devices have the potential to significantly improve efficiency. Telcos are well-positioned to embrace IoT across their value chain given their structure and are leveraging various investment options to provide IoT offerings across their solution stack. With the adoption of 5G, there will also be a need to invest in a 5G Internet of Things layer as 5G’s high band spectrum will require more access points.
As companies go on a trail to acquire advanced digital capabilities to remain competitive, this poses a key strategic opportunity for participants of the deal sourcing industry.
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