Global M&A Trends in Technology, Media & Telecommunications

As noted above, software deal value has increased compared to 2023 levels as corporates resume dealmaking following a period of internal focus.

Telecom companies continue to make transformational changes as they prepare for the future. PwC’s 27th Annual Global CEO Survey found that 52% of telecom CEOs say that their business models will not be economically viable in ten years if their companies continue on their current paths. Looking across the telecoms sector, we see companies and investors recognising that value can be unlocked by transferring components of the integrated telco business model into a more focused, or ‘puretone’, business model.

This shift toward business model reinvention is already being seen in transactions such as the Sprint and T-Mobile merger, BT Group’s spin-off of BT Sports into a joint venture with Warner Bros. Discovery and the announced sale of American Tower's India operations. These shifts are illustrated by the delayering and consolidation of assets that has been the trend in the industry over the past few years.

According to PwC’s Global Entertainment and Media Outlook 2023-2027, global advertising revenue is projected to increase from $763.7bn to $952.6bn, representing a compound annual growth rate of 4.5%. This trajectory puts advertising on a path towards becoming the first of three major entertainment and media categories to reach $1tn in annual revenue.

It has become a core revenue stream for entertainment and media businesses that depend on targeted advertising to generate incremental ROI, especially as streaming services mature. And capital is already being deployed. For example, Amazon is expanding its streaming of National Football League games to include some key playoff games.

This expansion of the market opens opportunities for the industry to further grow revenue channels as tech companies such as Apple and Netflix leverage their robust data collections to develop targeted advertising, demand-side platforms (DSPs) and supply- side platforms (SSPs) to reach consumer wallets.

We expect deals related to advertising and its components, such as ad tech vendors and digital marketing agencies, to be a focus for M&A as entertainment companies compete for a greater share of consumer spending. 

• The strategic mega deal returns: Amid greater economic certainty and increased confidence in valuations—and with cost-cutting measures behind them—CEOs are focused on executing their strategies. These factors, combined with pent-up demand, position corporate acquirers to lead a rebound in tech M&A. The year got off to a strong start with Hewlett Packard Enterprise’s largest-ever transaction; a proposed $14bn acquisition of Juniper Networks. Eight megadeals have been announced so far in 2024, significantly more than in 2023. Many market players are watching to see if this uptick in megadeals will lead to further megadeal activity throughout the remainder of the year.
• AI is driving investment over acquisitions: Despite significant media coverage of the potential of AI, we are not seeing a significant volume of AI transactions. Instead, companies are directing funds to invest in AI. In their April 2024 earnings calls, Google, Meta, Microsoft, and Amazon all announced plans to increase their capital spending to a combined $200bn in 2024 to fund investment in AI infrastructure. For example, Meta announced that its 2024 capital expenditures will reach between $35bn and $40bn as the company continues to accelerate infrastructure investments to support its AI road map, and Microsoft announced that it expects capital expenditures to keep increasing ‘materially’, driven by cloud and AI infrastructure investments. So, while we may not see marquee AI deals in 2024, we do expect companies to continue investing in building AI capabilities.
  
• IT services hit M&A pause: Economic uncertainty, high interest rates and cost profiles have led to a low, albeit stable, base of transactions. Volumes and values have remained stable with few mega deals. The IT services M&A market is emblematic of the current economic environment in which typical buyers of IT services often pause, postpone or even cancel planned projects. Waning top lines combined with high-interest rates and high fixed costs depress valuations and investor appetite.
  
• De-risking mutes semiconductor deal flow: We expect semiconductor deal activity to remain muted given that regulatory scrutiny, increased onshore investment and supply chain resilience and profitability are the priority areas of focus. Demand for generative AI has boosted the financial results of chipmakers and turned their focus to investing in semiconductor production, effectively reducing the funds available for M&A. However, some deal activity may occur, such as NVIDIA’s announced acquisition of Run:ai, a Kubernetes-based workload management and orchestration software provider.  

The global entertainment and media landscape continues to be reshaped by technology, creating innovative opportunities for strategic M&A as companies adapt to evolving consumer preferences, respond to regulatory pressures and focus on core business units.

• Distressed assets and restructuring: In response to shifting market dynamics, companies are pivoting away from the traditional linear model to focus on optimising capital allocation and positioning themselves for future growth. The key factors that may create an impetus for dealmaking in the second half of the year are the continued streaming wars, high demand for cross-platform content and consumers' growing obsession with personalised media and live event experiences.
• India as a growth hot spot: The increasing interest of dealmakers in India’s growing entertainment market is fuelled by India’s highly desirable size and scale, along with expected rapid growth in consumer spending and advertising. In the first half of 2024, Disney’s announced $8.5bn merger with Reliance Industries and the WWE’s ten-year $5bn deal with Netflix signal the potential for M&A to serve as a catalyst in the transformation of India’s hypercompetitive media and entertainment landscape. As the boundaries of the industry continue to blur, M&A activity becomes a powerful tool for strategic deal makers to improve their market position, access new audiences and capitalise on emerging trends.

During the first six months of 2024, we have seen indicators of the return of corporate megadeals in media and entertainment. In the second half of the year, we anticipate household names to continue to engage in large transactions as they look for ways to restructure their portfolios and respond to regulatory demands. 

As we highlighted in our 2024 Outlook, we expect telcos to continue to follow their core strategies of delayering, in-country consolidation and cross-country portfolio optimisation.

• Delayering continues to see deal activity as telcos look to optimise their portfolios and shift business models from being more integrated to becoming more focused. This delayering has been ongoing for several years and continues to move up the value chain, enabling more efficient operators. An example of this delayering is KKR’s proposed acquisition of Telecom Italia’s fixed-line network assets. We expect to see continued interest from investors, particularly from infrastructure funds, in carving out further active fixed and mobile networks.
• Consolidation, especially in-country, continues to see significant momentum as well. These deals and joint ventures offer an opportunity to create shareholder value by increasing scale within a country. Examples include the 50/50 joint venture between Orange and MASMOVIL in Spain, Swisscom’s proposed acquisition of Vodafone Italia and Saudi Arabian Public Investment Fund’s proposed acquisition of a controlling stake in Telecommunication Towers Company from STC Group. A common denominator is reducing the cost of competition in-country by partnering or acquiring scale.
  
• Cross-country portfolio optimisation is driving deal activity as telcos align on internal company strategy and look to leverage investor or competitor interest in assets that they deem no longer critical to long-term shareholder value creation. For example, BT is working to sell BT Italy and Ireland. Several US telcos are looking at strategic alternatives for a variety of their assets and are considering changes in their business models. As these companies look to reinvent their business models, stranded international assets that do not tie in to their long-term strategies may create an opportunity for investors.