A few months into 2022, and mergers and acquisitions (M&A) activity in the technology, media, and telecommunications (TMT) sector is already setting the tone for an interesting year ahead, with some organizations making bold moves into the new and next. This is after a banner 2021 where the sector topped the tables in both value and volume, while powering wave after wave of transformational M&A to help organizations capture and capitalize on soaring ecommerce, a widespread shift to hybrid working practices, and the rise of streaming in the leisure, media, and technology sectors.
On the flip side, as demand grows and the consumer experience evolves, tech companies have also become extremely attractive M&A targets. And with lower barriers to entry, buyers are looking to supplement their existing capabilities and transition to a more reliable ‘as-a-service’ operating model. Of course, this is leading to increased competition for assets and higher valuations.
M&A: Under the magnifying glass
This activity and the valuable data involved in many of these transactions is also drawing greater regulatory scrutiny by competition authorities around the world, especially deals that involve actual or potential competitors or matters of security.
The US is leading the way on this front, where the Committee on Foreign Investment in the US (CFIUS) already scrutinizes in-bound investments for national security concerns and constantly evaluates whether changing security vulnerabilities, including those linked to emerging technologies and data capabilities, present a threat. Additionally, the Biden administration has stepped up efforts to prevent mergers that may substantially lessen competition or tend to create a monopoly.
In Europe, the UK is also investigating and acting on anti-competition strategies. The Competition and Markets Authority (CMA), the country’s top antitrust watchdog, whose influence, responsibilities, resources and powers have grown post-Brexit, ordered a top social media company to drop its plans to acquire a competitor in the display advertising market to ‘protect millions of social media users and promote competition and innovation in digital advertising.’
In fact, the CMA has stepped up its investigations into everything from fake reviews to the use of advertising data. With further plans on the horizon, including monitoring big tech firms and enforcing specific conduct codes, the changes will undoubtedly include even more oversight of M&A, especially
complex cross-border mergers, previously the EU Commission’s domain.
Levelling the playing field
Still, as the US and UK adopt measures to regulate established market players, they must also continue find ways to identify, incentivise, and inspire innovators. Start-ups are a key driver of new ideas, products, services, and business models and therefore play an important role in competitive markets. They can help break up saturated markets, drive out inefficient players or force them to improve and ensure markets reduce inequality. However, they are vulnerable to exclusionary unilateral conduct and protectionism.
The CMA’s objective is to regulate securities activities in a fair, transparent and efficient manner. The goal is to grow the capital markets, diversify and develop investment instruments, and enhance investor protection. Competition agencies like the CMA are therefore keen to ensure that there is a level playing field and innovative start-ups can compete on their own strengths and offer consumers wider choice and fairer prices.
Getting the deals done
Governments and competition agencies have unique views on how to tackle competition in the technology sector and differ in approach, the consensus is clear: overcoming concerns in digital markets remains a top priority and existing competition tools are not always adequate.
While large deals are expected to face stricter oversight from authorities, favorable macro trends may provide something of a countervailing force. Market momentum is not expected to slow down. In fact, new global TMT projects on Datasite’s platform were up year-over-year by more than 40% in 2021 compared to 2020. This means there is robust deal volume in the sector that is already being worked on, although many won’t be announced until the second or third quarter of 2022.
The wave of regulation and reform which will shape digital markets and TMT deals will mean it’s
crucial that sellers, buyers, and dealmakers understand how and where regulators may intervene
and that they develop a coherent strategy in the markets where regulators operate. It therefore becomes even more crucial to get the due diligence phase of a technology M&A deal done right, including getting it done efficiently and effectively. Having a structured system in place to quickly find and review relevant documents is key to minimizing any adverse impacts that a heightened regulatory environment creates.
Technology for tech M&A
Dealmakers can use technology with well-developed due diligence and integration capabilities, to help them navigate regulatory compliance and scrutiny that also means they can meet deal execution timetables.
Solutions like virtual data room (VDRs) applications can streamline the management and processing of masses of documents and artifacts. Thanks to the rise of cloud computing, they also enable 24/7 access to crucial and sensitive information from anywhere in the world, thereby expediting collaboration and ultimately the M&A process.
Powered by artificial intelligence and machine learning, these applications can help M&A teams to rapidly digest and standardize large data sets and evaluate multiple potential scenarios at speed. Teams can then distinguish more sources of value from the transactions they execute, while predicting more accurately the value to be achieved. In recent years, significant technological advances in the M&A and due diligence process have occurred. Yet in the next few years and beyond, new technologies, perhaps built into the next generation of virtual data rooms, could potentially see the M&A and due diligence process further transformed.
Looking to the rest of 2022, one can reasonably expect antitrust enforcement to start to pick up again across all sectors – with tech staying front and cener of agencies’ focus.
More scrutiny may mean there are additional challenges to navigate and plan for, but it can also offer more opportunities to grow, innovate, and shape the transformative change for which technology is so very famous.