Confidence in the M&A market is rising, with 58% of technology, media and entertainment, and telecommunications (TMT) executives planning to pursue M&A in the next year—up from 42% six months ago, said EY recently.
According to the company’s 20th edition of the EY Global Capital Confidence Barometer (CCB), concerns around regulatory headwinds and competition are not preventing businesses from harnessing the transformative power of M&A.
TMT execs confident about the global economy
Results of the survey indicates that 73% of TMT executive respondents expect the number of deal completions compared to the past 12 months to increase—up from 51% six months ago despite a recent escalation in trade tensions across the globe
This is underpinned by rising confidence in economic conditions, with 94% of executives anticipating an improvement in the global economy and over three quarters expecting to see an improvement in corporate earnings (87%), credit availability (87%) and equity valuations (76%), EY pointed out.
The CCB indicates that all TMT executives are planning significant investment in technology this year. Nearly a quarter of sector respondents (23%) cite acquiring technology, talent, new production capabilities or innovative start-ups as the main driver for acquisitions.
M&A emerges as new growth engine for tech firms
The CCB points to a surge in deal appetite among technology businesses, owing in part to the US Federal Reserve’s decision not to increase interest rates in 2019.
EY said that 61% of technology respondents expect to actively pursue M&A in the next 12 months, up from 40% in October 2018.
Most respondents (92%) believe that the technology sector economy is improving overall—compared with 51% six months ago, while 80% say corporate earnings, short-term market stability and credit availability are all improving.
In addition, 65% intend to pursue cross-border technology acquisitions, up from just 26% six months ago.
Year-on-year deal volume and value reflect this sentiment—up 2% and 39% respectively in Q1 2019, highlighting that larger technology deals are on the rise.
“An active deal market underscores the reality that, despite geopolitical uncertainty, transformational technology deals are required to evolve today’s businesses – not only to win in the market but also to survive.” said Ken Welter, EY Global Technology Transactions Leader.
Media and entertainment executives bullish about transactions
In the media and entertainment sector, 85% of respondents expect the M&A market to improve in the next 12 months, compared with 64% in October 2018.
Despite continuing speculation around macroeconomic and geopolitical instability, most M&E executives (95%) say the sector economy is improving—up from 48% six months ago.
The survey further highlights the imperative for companies to build agility and resilience into the enterprise, with the number of executives reviewing their portfolios on a quarterly basis rising from 23% to 49% in six months. Indeed, 53% expect to actively pursue deals in the year ahead—exceeding the 10-year survey average (46%).
“Media and entertainment companies continue to use M&A to position themselves for the future, as they look to acquire existing popular content and the creative talent to secure future hits, exclusive data and expertise to create unique and tailored product offerings, or access to large audiences and subscriber bases,” pointed out Will Fisher, EY Global Media & Entertainment Transactions Leader.
Telco M&A indicators improving despite regulatory risks
Telecommunications sector executives are also optimistic about the power of M&A to realign their technology portfolios and transform for growth, EY noted.
According to the report, 82% say the telco M&A market will improve in the next 12 months—up from 65% year-on-year, while 58% expect their M&A pipeline to expand in the coming year.
With 5G commercial launches close to fruition in many markets, 55% of executives say they expect to actively pursue acquisitions in the year ahead.
In addition, expansion into adjacent sectors ranks as the highest strategic growth priority for telcos (27%), as opportunities associated with the Internet of Things (IoT) offer the promise of new convergence plays.
The regulatory environment continues to pose challenges, however, with 72% citing its influence on deal strategy.
“With digital infrastructure investment trending up worldwide, operators are reshaping their organizations to take advantage of a new growth agenda,” said Axel Majert, EY Global Telecommunications Transactions Leader. “But this requires more than simply repositioning products and services to cater for new addressable markets. Changing considerations of core and non-core activities continue to fuel the telco M&A agenda, as operators look to secure access to fresh thinking and new capabilities.”