HORIZONS | BDO'S GLOBAL VIEWOF MID-MARKET DEAL ACTIVITY 59
TMT DEAL ACTIVITY SPLIT PER INDUSTRY SPACE 2020 Q1 2021 Q4
M&A CATCHES ITS BREATH The end of 2021 saw a slowdown in mid- market TMT M&A activity levels. While the average deal size rose to USD 121m (up from USD 100m in the previous quarter), deal totals and combined values were 36% and 26% lower than in any other quarter in 2021 respectively. The Digital media & E-commerce sub-sector in particular saw a steep drop in activity levels, registering a two-year low of 51 deals. However, we remain bullish about mid- market TMT M&A’s near and medium-term outlook. While activity slowed, Q4 2021 still ranks among the busiest quarters for many years. It is, in other words, a relative slowdown. Drivers might include rising deal values and concerns that valuations in certain industry spaces are becoming overheated. As a result, investors are taking stock of the situation at the end of a hectic year, catching their breath, and identifying sub-industries and targets for future investment. Furthermore, Q4 2021 should not be compared withQ4 2020, as it was an exceptionally active quarter with a number of deals put on hold due to COVID-19 outbreaks earlier that year being completed, so it did not see the often-occurring fourth- quarter drop in M&A activity. Simultaneously, both economic andTMT trends point toward 2022 continuing 2021’s activity levels. ECONOMIC TRENDS BDO’s 2021 Middle Market CFO Survey reveals that many mid-market companies are actively pursuing M&A. 29% of respondents say they are looking at PE investment, 24% are planning mergers or acquisitions and 20% are pursuing an IPO. Deal drivers include taking advantage of economic recovery, driving business transformation programmes and securing supply chains. Those trends are unlikely to change anytime soon and contribute to why we think company-driven M&A activity will be undiminished in 2022.
2020 Q1 2020 Q2 2020 Q3 2020 Q4 2021 Q1 2021 Q2 2021 Q3 2021 Q4
0 100 200 300 400 500 600 700 800 900
Technology
Telecom Digital Media & E-commerce
Data: MergerMarket, Graph: BDO Global
Simultaneously, investors continue to look to TMT and have access to ever-growing stores of dry powder. According to data provider Preqin, PEs raised an eye-watering USD 714bn in 2021, with similar activity predicted for the year ahead. Pitchbook data shows similar performance for venture capital firms (VCs.) By October 2021, VCs were closing in on USD 100bn raised, and had already surpassed 2020, setting new high watermarks for average deal size and mega-rounds. TECHNOLOGY KEEPS EVOLVING Much of the interest in TMT M&A activity is linked to the ongoing digital transformation taking place across industries. Simultaneously, consumers and customers continue to gravitate toward digital, online solutions, further incentivising companies to upgrade digital set-ups to meet changing demands. To use ongoing trends in select industry spaces as examples: • Manufacturing: Technology is key to navigating changing market conditions, at-risk supply chains, and enhancing production cycles. Early adopters of new technologies are achieving breakaway performance.
• Healthcare: Digital transformation efforts are revolutionising services and interactions, expanding markets and increasing investor interest. • E-commerce: COVID-19 has further boosted investment and consolidation in the e-commerce space. In the latter category, marketplace aggregators have raised unprecedented amounts of capital during 2021. In other words, new TMT developments and solutions are creating opportunities across industries and providing companies
with the means to counter many of the adverse effects created by the
ongoing pandemic as well as grasp new opportunities. As a result, TMT companies’ market potential keeps growing, fuelling further investor interest. AI everywhere, Everything-as-a-Service, no-code application building and edge computing are some of the new trends likely to further boost TMT companies’ potential in the coming quarters. With all this in mind, we expect that mid- market TMT M&A is likely to continue to impress in 2022.
Made with FlippingBook HTML5