No doubt that TMT is driving global M&As in 2015, with new regulations in Europe, and a concentration and consolidation game arising quickly. However, financial evaluation is more and more in neglect, driving higher prices than ever.
TMT the new engine that pulls M&A higher…
2015 continues at a speedy pace and is on track to eclipse 2014, a record year. With 4 deals ranking among the 10 biggest in first half 2015, TMT (Technology, Media, Telecom) is the sector drawing everyone’s attention. After Comcast’s failure to acquire Time Warner Cable in 2014, Charter Communications stepped in and announced on May 26th that it had secured a bid on the TV-operator for $79.59 billion. The industry is clearly in a reshaping mood, where innovation is a key component of acquisitions, especially in the semiconductor world. Latest deals: Intel/Altera ($16.59 billion), NXP Semiconductors/Freescale Semiconductor ($16.67 billion) and Avago Technologies/Broadcom ($36.57 billion) show how key players have turned on the acquisition mode. It is particularly true in the small & midcap environment where acquiring a technology, a team, or access to customer is expedited by acquiring competitors. For Frederic Ichay, M&A partner specialized in new technology at Pinsent Masons, the sector’s boom is also due to a structural aspect: “tech companies are sitting on important reserves of cash, financing is easier and cheaper than ever, capital equity has also increased with greater ease than in the past, and finally, board managers are undergoing a healthy pressure from shareholders to use it.”
…With a risk of bubble?
According to a study by U.S.’s Dealogic, covering deals of more than one hundred million dollars carried out in the technology sector, 69% of businesses have acted without their bankers, versus 27% in 2004. In 2013, the acquisition of the Waze application by Google for 1.15 billion dollars was done without any investment bank, just as the purchase of Beats Electronics by Apple last year. Are giants following Larry Page’s toothbrush test? For as he says without looking at financial statements, just as a tooth brush, consumers must need to use the product marketed by the firm at least twice a day. With galloping valorization, the risk of bubble is on everyone’s mind. For Frederic Ichay “Google is so rich that it does not require to look at valorization, which is not a standard in the sector”. Ichay continues “It is not possible to pay that much indefinitely.” With a rise in interest rates (end of Q.E) expected soon, financing will not be more difficult, and we can expect valorization to be normalized.