From crypto to AI: Decoding the tech M&A space

Alistair Lester at Aon explains why the TMT sector is leading global mergers and acquisitions

 

As the world began to recover in 2021 from the COVID-19 pandemic, global M&A activity surged. Buoyed by the reopening of the world economy, supportive fiscal and monetary policy, and the eagerness of both strategic buyers and private equity investors to deploy capital, deal activity hit record highs.

 

Last year, Mergermarket saw annual deal value surpass $5 trillion for the first time. Total deal value reached $5.7 trillion in all, with nearly 26,000 transactions announced worldwide.

 

Against this backdrop, there are certain areas that dealmakers are getting particularly excited about - and the technology, media & telecoms (TMT) sector is standing out as a key player. Recent research found that almost three-quarters of dealmakers (70%) cite TMT as the most prolific sector in terms of expected dealmaking over the next 12 months.

 

This excitement is stemming from senior dealmakers and finance professionals within the industry, including senior executives from corporate development teams, private equity firms, and investment banks.

 

Amongst this broad sense of optimism in the TMT M&A space, there are a variety of both challenges and opportunities to be considered. Let’s explore the key areas that dealmakers should be aware of in the sector at the moment.

 

The crypto seesaw game

At the moment, we’re seeing the ongoing love-hate relationship with crypto continue to unfold, meaning that the jury is still out on the future of this space. It’s hard to generalise in this space, but there are investors out there who will see the space as an opportunity and move towards transactions.

 

At the same time, there are still plenty of investors who don’t yet understand the sector well enough to invest with confidence, resulting in them staying away from it. Increasing caution around crypto investment has come about following the recent crypto crash and consequently unclear future of the industry.

 

In either case, as with any seesaw situation, regulation will play a significant role in the outcome and policy makers will put greater scrutiny on the technology in the space.

 

Hot tech stocks

While crypto is one key word on the minds of many dealmakers, there are a number of other hot tech stocks out there that are getting the market excited.

 

First on the list is green tech, specifically any technology that helps with the enablement of a green, net-zero future. These technologies are often tied into the broader resilient and sustainable infrastructure space.

 

Secondly, as we enter a time where risk management plays an increasingly critical role, insurtech is a space to watch.

 

Healthtech is also attracting attention, as the healthcare industry drives its digital capabilities forward. The market for data-driven tech that gives people access to their own information, medical insights, and contextual references for their own health is only going to grow.

 

Finally, IP. When it comes to intellectual property, any model that enables companies to scale up is very important for economic growth. Firms that can articulate the inherent value of their intellectual property will be able to access different forms of finance, in a way that previously wasn’t possible.

 

Values clouded by artificial intelligence

While AI has been a technology buzzword for years, we’re now starting to see the world of AI transition from being a concept to a prominent reality. When it comes to dealmaking, it’s critical for companies to understand the true nature of their user base and to identify the difference between true individual users and bots and AI.

 

This is particularly important given that the value of bot and AI traffic is lower than that of a true individual user. The more a company is investing in AI and bot traffic technologies, the more investment goes into something which has a lower return. As such, companies have to strike the right balance between investing in AI whilst focusing on building the value-driven true human interactive market.

 

The role of technology for dealmakers

With technology stocks in high demand, it’s worth considering the impact technology is having on dealmaking itself.

 

For example, digitalisation was crucial for dealmakers throughout COVID-19 restrictions. At the height of the pandemic, digital solutions played a critical role in facilitating M&A. New technologies could support remote deals and ensure transactions were able to go ahead across the globe - even with the inability to travel to the target destination, deals could be evaluated and completed on time.

 

Following this positive impact, and after experiencing the advantages of progressing deals remotely, dealmakers will no doubt continue to invest in the TMT space in the months and years to come.

 

Technological innovation ultimately has the potential to support M&A in multiple areas and this broad sense of confidence in TMT M&A isn’t going anywhere fast. We’ll soon see if our dealmaker predictions ring true.

 

---

 

Alistair Lester is Global Co-CEO of M&A and Transaction Solutions at Aon

 

Main image courtesy of iStockPhoto.com