TMT global M&A update- Q1 2020

Average weekly transactions: January - 151, February - 127, March - 91

The quarterly picture however masks a much steeper decline in activity towards the end of Q1 2020, especially as the impacts of COVID – 19 were felt in Europe and subsequently in the US. As the chart illustrates, looking at weekly TMT deal volume over the previous few weeks, announced deal volumes shows a precipitous decline from a weekly average of 139 deals in both January and February 2020 down to 91 weekly deals in March 2020. We anticipate this decline in volume to continue so long as the uncertainty around the full economic impact of COVID-19 is understood.

Lessons learned from past global economic challenges

Questions as to whether this will be a “U”, “L” or “V” curve in terms of economic recovery, continue to be asked and leading economists continue to make predictions as to how quickly (or not) the economy will recover.  Given the vastly different points of view, it is hard to draw definitive conclusions on the long-term impact on M&A of the COVID-19 crisis. However, we can look back at two major economic disruptors over the past few decades - the SARS outbreak in Asia and the great recession of 2008 to look for signs on how TMT M&A activity may respond.

The low point of the recession in 2008 was followed by years of economic growth. We began to see economic activity pick up again in 2009, but TMT M&A didn’t rebound as quickly. Between 2009-2012, tech acquirers averaged less than half of their annual spending compared to the two years leading up to the recession.

The SARS outbreak in Asia in 2002, tells a different story. While it did not cause as significant of an impact globally, it did present economic challenges to Asian nations and caused a decline in deal volume. However, in May 2004, the WHO announced there were no new SARS cases in China and by the end of Q3 2004, deal volume had recovered to its previous levels.

Having said that the current situation is quite different, and while we understand the reasons for the negative impact on the economy, COVID-19 presents us with an unprecedented event with no true parallels. The ability and extent of the TMT M&A market recovery will depend on how quickly the economy returns to its previous strength – or whether we are faced with a “new normal” as it relates to economic growth. It is hard to predict how this will play out over the next 12 months.

Opportunities for TMT M&A

There are subsectors within TMT that have shown resilience despite the current economic environment, and may in fact have benefited from some of the recent trends driven by the government’s social distancing mandates in various cities and states.

This is especially true of those TMT technologies that we are increasingly relying on as business shifts to remote work and consumers consumption habits change. We believe some of these changes in behavior will continue post-COVID-19 and as a result, some TMT sectors ² will see growth amid the pandemic and beyond.

As we look ahead, we anticipate that opportunities for strategic investments will occur. In the meantime, we encourage TMT companies to embrace the opportunity to address consumer demand as well the opportunity to assess their capital structure in the short term to ensure they are able to navigate these uncertain times.