- Cross-border M&A in the TMT sector rose to 1,007 deals worth US$212.7bn in 2015, close to 2014’s total of 1,071 deals worth US$225.5bn
- Among the technology, media and telecoms sub-sectors, technology was most active, accounting for 70% of deal volume and 49% of deal value in 2015
- US buyers were the most active tech acquirers in 2015, with 232 transactions worth US$25.1bn. The US was also the biggest target, with 155 deals worth US$48.7bn
- China has become an increasingly active player in the tech sector, rising to become the third-largest acquirer in 2015 after the US and UK
The urge to converge
TMT was the most active sector for cross-border M&A in 2015, outstripping all others in deal volume and second only to healthcare in deal value — a reflection of the persistent need for companies to reinvent themselves to remain competitive in the global market.
This fierce competition has generated high demand for new technology, intellectual property and talent in the TMT sector, pushing year-end totals for cross-border transactions to 1,007 deals worth US$212.7bn, matching activity levels in 2014.
The quest for reinvention has ushered in a new era of convergence between industries creating hybrid sectors such as FinTech and Health Tech. The majority of these technology deals in 2015 were driven by buyers in the US, UK and China.
“Traditionally we have operated on the assumption that technology deals were being done by technology companies but that is no longer the case,” says Howard Wu, Head of Baker McKenzie’s Asia Pacific Information Technology & Communications Group. “Increasingly many companies view themselves as technology or big data companies even though they are in other industries such as financial services or healthcare.”
Innovations by tech start-ups are also pushing multinationals to broaden and diversify their product and service offerings to maintain their consumer bases, such as IBM’s US$1bn acquisition of medical image provider Merge Healthcare in October.
“Multinationals are looking at where this new technology is coming from — the disrupters — and wanting to be part of that disruption themselves to maintain their market position,” says Anne-Marie Allgrove, global chair of Baker McKenzie’s Information Technology & Communications Group.
Technology on top
Technology was the standout among the three TMT sub-sectors, accounting for half of all deal value and 70% of volume in 2015. The value of cross-border technology deals rose 45% from 2014, to US$104.4bn.
China has become an increasingly active player in the tech sector, rising to become the third-largest acquirer in 2015 after the US and UK, with 41 deals worth US$19.2bn. This trend is driven largely by the Chinese government’s push for state-owned companies to pursue high-tech deals such as Tsinghau Unigroup’s proposed US$23bn acquisition of Micron, one of the largest chipmakers in the US.
“Increasingly over the last few years Chinese companies have been tapped by the government to not simply acquire natural resources or more traditional businesses overseas,” Wu says. “There’s been a huge policy push for Chinese outbound investments and technology is an area that has room for growth.”
A major driver of tech M&A is not only acquiring new technologies but the people who can develop and implement them. That makes creating the right incentives and environments to retain talent after the deal closes even more crucial during post-acquisition integration planning.
“A lot of big companies have created specialist teams to ensure the post-merger integration of acquired start-ups is as smooth as possible,” Allgrove says. “They want to ensure that new entrants are assimilated rapidly and in a constructive way to enhance the likelihood they will remain and be successful within the organization.”
Eye on the future: three key trends to watch
- Tech to traditional: Continuing the convergence trend, major technology players will look for even more ways to enter traditional sectors like financial services and healthcare. “In particular, we anticipate a lot more deals in the FinTech space,” Allgrove says.
- Virtual to reality: Online to offline businesses such as Airbnb and Uber will continue to attract attention from major players in the industry. “One key area for M&A growth could be in the peer-to-peer lending space,” Wu says.
- Focus on India: India emerged as the fourth-largest target country in the tech sector in 2015. Because of India’s strong culture of innovation, growing educated middle class and the proliferation of IT outsourcing companies, this trend will likely continue into 2016.