A steep drop in technology, media and telecoms (TMT) deals due to the Covid-19 crisis is raising questions about the future of foreign direct investment (FDI) in the sector.
Research from analyst GlobalData confirms a sharp drop in global mergers and acquisitions (M&A) deals in the first half of 2020. Deal volume dropped to 253 M&A deals with a transaction value of $50m or more in the TMT sector, down 40% on the same period in 2019. The volume of deals in the first half of 2020 was lower than in any six-month period over the past five years, according to the research.
The combined transaction value of deals announced during the first six months of 2020 was $216.6bn, a drop of 24% from $285bn in the second quarter of 2019, representing a 51% fall compared with the same period last year.
Several planned deals have been cancelled this year, according to GlobalData. Its research found six terminated deals in the first half of 2020, with a combined value of $41.8bn. Four out of these six deals were aborted due to the pandemic, including Xerox’s bid to acquire HP, Alphatec’s takeover of EOS Imaging, WEX’s acquisition of eNett and Optal Australia, and the purchase of 50% of Afimilk by Livestock Improvement.
Software leads the way
Within TMT, software has been the leading greenfield FDI sector (by number of projects) for several years, according to New Statesman Media Group chief economist Glenn Barklie.
“Although greenfield FDI and M&A can be on different trajectories, it is evident that we are seeing sharp declines in both,” he says.
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However, Barklie adds that the tech sector is expected to be one of the fastest FDI sectors to rebound from the Covid-19 crisis, buoyed by e-commerce, data centres, gaming, health tech and smart tech.
“Company acquisitions may well become more attractive [i.e. cheaper] and we would expect the number of M&A deals to pick up rather rapidly next year,” he says.
After a sharp fall in March 2020, deal volumes have been rising since April 2020, according to the GlobalData research, with the software and services sector driving recovery by accounting for 52% of all TMT M&A transactions in the first quarter of 2020.
However, the research found that big tech companies have shied away from billion-dollar deals so far in 2020 compared with 2019. Of the nine acquisitions announced by the world’s five largest tech companies in the first half of 2020, only three had a deal value of $1bn or more.
Latest estimates by the UN Conference on Trade and Development (Unctad) confirm the short-term impact of the pandemic, with both new greenfield investment project announcements and cross-border M&A across all sectors falling by more than 50% in the first quarter of 2020 compared with the same period in 2019.
Unctad forecasts global FDI flows will fall by up to 40% in 2020 with a further 5–10% decrease in 2021 before recovery begins in 2022.