M&A in the technology, media and telecommunications sector is rebounding in 2024, driven by sustained enthusiasm from private equity firms.
Looking across TMT, aggregate deal values totaled $128.40 billion in the third quarter, according to an S&P Global Market Intelligence analysis, up from $110.14 billion a year earlier. The total was also up on a sequential basis from $100.57 billion in the second quarter. Year to date as of Sept. 30, deal values in 2024 have already topped those seen in the entirety of 2023.
Many of the largest deals focused on emerging tech sectors, like datacenters, artificial intelligence and cybersecurity. The resurgence is also largely due to private equity buyers, which have recorded unusually high transaction volumes for two consecutive quarters.
"Financial sponsors are telling us 'please bring us product because we want to see what’s out there, even if we aren't as aggressive in our investing activities right now," Ted Smith, partner and president at investment bank Union Square Advisors, told S&P Global Market Intelligence.
Buyout shops are waking up
In the third quarter, private equity firms shelled out approximately $52 billion in TMT transactions, matching levels seen in 2021 and 2022. This surge in activity has been eagerly anticipated by investment bankers, although previous attempts to ramp up have faced setbacks.
"Tech M&A on the PE side is starting to come back and having momentum," Howard Gutman, private equity and M&A Value Creation Leader at MorganFranklin Consulting, said in an interview with Market Intelligence.
The few transactions that did occur were either distressed assets or involved high multiples for firms benefiting from secular trends like digital infrastructure, artificial intelligence and cybersecurity. That uncertainty seems to be fading, as growth rates in software seem to have stabilized.
“Revenue growth rates have come down — it is a new normal,” Scott Twibell, co-head of Lincoln International’s TMT group, said in an interview with Market Intelligence. "If it was 30% historically, and 18% today, the uncertainty has cleared."
Twibell notes, however, the supply of good companies remains the main constraint to higher M&A volumes.
In the largest TMT M&A deal with a PE buyer this quarter, Blackstone Inc. agreed to shell out over $16 billion for datacenter operator AirTrunk Operating Pty Ltd., exemplifying the high prices buyers are willing to pay for datacenters that have large enterprises as customers.
Meanwhile, Smartsheet Inc., a software provider that has seen its revenue growth slow from 50% in 2020 to 25% now and still loses money, saw its valuation cut by more than half. According to data from Visible Alpha, Smartsheet's valuation fell from 17.6x price-to-sales in 2021 to about 7x in its 2024 deal to be acquired by Vista Equity Partners Management LLC and Blackstone.
Strategic buyers weighed down by regulators
After a strong first quarter, strategic buyers largely remained on the sidelines in the following six months.
Major deals remain elusive, as tech giants struggle to pursue acquisitions amid ongoing regulatory uncertainty.
"We live in a current regulatory environment where we can no longer provide reliable advance advice to our clients about whether a deal will likely receive regulatory approval," Steve Barth, a partner at law firm Foley & Lardner, said in an interview with Market Intelligence. As a result, deal lawyers are more often opting to err on the side of caution and tell clients that deals may likely not get approved.
"We like to be right. And on deals that never get submitted for approval, we're always right," Barth said.
Simultaneously, tech companies like Meta Platforms Inc., Alphabet Inc., Microsoft Corp. and Amazon.com Inc. are in fierce competition for spending on chips and datacenters, aiming to position themselves as leaders in the tech platform shift towards artificial intelligence. Alphabet reportedly showed interest in acquiring cybersecurity firm Wiz Inc. and customer relationship management software provider HubSpot Inc., but neither deal materialized.
In the deals that happened, strategic buyers set their focus on cybersecurity and artificial intelligence. In the largest TMT M&A deal with a strategic buyer in the third quarter, Advanced Micro Devices Inc. agreed to acquire AI server maker ZT Group Int'l Inc. for $4.9 billion. Other large deals include Mastercard Inc.'s planned acquisition of threat intelligence provider Recorded Future Inc. and Salesforce Inc.'s pending acquisition of data security vendor OwnCompany Inc.
- Author
- Iuri Struta