Précis - Through 2012 the value of TMT deals worldwide marginally increased, one of the biggest deals of the year was in the TMT sector, stock markets showed an increase in TMT admissions and yet, two out of three sub-sectors lost ground and significant tech companies suffered.

What? With 2012 being a mixed bag for the TMT sector in terms of global M&A/market activity, the below summarises the key transactions and apparent trends.

So what?

M&A Trends

The global aggregate value of all TMT deals is reported to have marginally increased compared with 2011, despite overall global M&A value being flat against the previous year.

However, this does not provide the complete picture as the global value of technology and telecoms deals fell in 2012. Only the media sub-sector experienced a global value increase, which, due to large transactions like the $4bn acquisition of Lucas Film by Disney, the $1.9bn purchase of UK music firm EMI by Universal Music and the creation of the world’s largest book publisher with the merger of Penguin and Random House, increased its value by 20% despite only experiencing a 6.5% increase in deal volume. In the telecoms sub-sector deal volume fell roughly in line with the drop in overall deal value (17.5% decrease in volume against a 16.2% drop in value) but, interestingly, the volume of technology deals dropped only slightly (3.8%) despite a value drop of 13.5%.1

These figures suggest the following:

  • the media sub-sector was largely responsible for retaining and increasing the global TMT deal value thanks to big-ticket deals;
  • the majority of deals in the technology sub-sector were in the mid-market and, in the UK particularly, software transactions dominated2; and
  • the telecoms sub-sector experienced an all-round downward turn, although it should be noted that the biggest TMT deal of the year did fall under this sub-sector (please see below for more details).

However, the apparent poor performance of telecoms is perhaps not so dire when one remembers that 2010/2011 brought a surge of activity revolving around the 4G spectrum. Such activity could also see a repeat later this year in the broadcasting segment of the market (although more likely not until 2014) when parties begin to determine who should develop, distribute and own the systems and delivery networks needed to provide 4k and/or 8k television broadcasting.

In terms of 2012 big-ticket deals, the takeover of US cell phone carrier Sprint by the Japanese firm Softbank, was the biggest deal of the year for the TMT sector and, with a reported value of over $34bn, ranked third out of all M&A transactions worldwide.3 Other notable players included Cisco Systems, which acquired the NDS Group in a $5bn deal and Facebook who, in addition to purchasing more than six other smaller companies and making ripples, if not waves, on NASDAQ (see below), acquired Instagram for $1bn.

Facebook’s acquisition strategy in 2012 appears to reflect the market trend of acquiring companies mainly to enhance patent portfolios. In May 2012, Google also proclaimed that “knowledge is power” by acquiring Motorola Mobility for $12.5bn. Since the acquisition, Google have seemingly not utilised their purchase in the production of any new devices, leading many to speculate that the real intention was to own the patents primarily for the purpose of having a defensive position in the continuing IP war with Apple, Samsung and Microsoft4.

Market Trends, plus the fall and ‘rise’ of Facebook and Apple

The plague of the Euro-crisis has not made matters easy for the UK Stock Market but there are no red crosses painted on the doors of the London Stock Exchange just yet.

Admissions to AIM have been very low over the last few years and 2012 was no exception, although they have increased against 2011 and so too have TMT IPOs (five in the last year, which is more than both 2011 and 2010 combined but still nowhere near the levels admitted five or six years ago). There were also two TMT IPOs on the Main Market. Not a major achievement but better than 2011 when there was only one, and even more of an achievement considering the overall number of admissions fell by almost half.5 In whatever light the figures are painted, however, it is clear that the UK simply offers little to no tech stocks in which to invest.

Many TMT companies continue to prefer admitting to the US markets. In contrast to AIM, 128 companies went public on NASDAQ, making 2012 the second highest year for IPO activity on NASDAQ in the last five years6 (although this is still much lower than the heady days of the early noughties). Further, the composite index of the TMT-heavy NASDAQ finished 2012 up 16%, which was described as a “vast improvement from a year ago, when [the index] fell 1.8%”. Of the 128 IPOs, around 36 where completely in the TMT sector and while the year end index results appear encouraging, they are not reflective of the difficulties experienced by some major TMT companies listed on the US market.

In May 2012, the Facebook IPO on NASDAQ provided the most high profile market story of the year, as its shares plummeted until trading at less than 50% of the initial offering price in August.7 While share prices have since increased, they have failed to reach the original price of $38 per share. Despite such failings, it was announced in mid-December that Facebook Inc would become part of the NASDAQ 100 list in 2013.

Apple, the world’s largest stock, also experienced a significant dip in share prices through Q3 as they dropped from an all time high of approximately $700 per share in September to $500 in December. Many reports suggest this came as a direct result of the widely ridiculed Apple Maps release, a slew of top executive resignations and an underwhelming iPhone 5 reception. However, other reports argue the cause is simple economics. One such report, posted by the Economy Watch in mid December, described Apple’s dip as a consequence of cyclical investment practices.8 Whether this is the case is yet to be seen and, unfortunately for Apple, the first months of 2013 have not reversed the position. In any event, it will be interesting to watch the US markets further into 2013.

2013 starts with a bang

Two months in to 2013 and already there are two possible contenders for biggest TMT deal of the year.

On 5 February 2013, Dell Inc. announced that it had signed a definitive merger agreement, under which technology private equity firm Silver Lake and Dell’s founder and chairman, Michael Dell, will acquire Dell Inc. later in the year. The estimated value of the deal is an eye-watering $24.4bn and huge players such as Microsoft are also rumoured to be involved.

Only a day later, on 6 February, it was announced that, subject to shareholder approval, Liberty Global (an international cable TV giant chaired by US billionaire John Malone) would purchase Virgin Media in a deal valued at approximately $16bn. It is anticipated the merger will create a direct rival to BSkyB, which should prompt a slew of further transactions as the two battle for supremacy. Certainly those companies focusing on integrated technologies within the next wave of “smart” televisions will be prime targets for companies seeking to gain ground in the competing sub-market. Apple is already said to have its sights on German TV maker Loewe.

Whether 2013 can keep up this early pace seems unlikely. The majority of 2013 predictions, published over the last few weeks, conservatively estimate that the TMT M&A market will stay flat, with little on the horizon to suggest otherwise. However, Field Fisher Waterhouse (in their report, “Technology M&A Trends for 2013”) have labelled big data analysis and M2M as key areas of interest for the year ahead. We will be watching closely and keep you updated.