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Saranac Partners was pleased to host a client breakfast event in November with Arma Partners, the leading global M&A advisory firm serving the Communications, Media and Technology (CMT) sector.
Drawing on its global expertise and diverse client base, Arma Partners shared insights on M&A activity and trends affecting the M&A, FinTech, media and telecommunications sectors:
The M&A market remains buoyant, with current multiples above historical averages and recent large tech transactions demonstrating a high level of confidence in the market.
This strength is driven by strong fundamentals, including:
- Strong performance of the public market
- High cash reserves for strategic investors
- Low levels of corporate debt
- Significant private equity dry powder
The global FinTech market, which is experiencing record levels of deal activity globally across all verticals, is continually maturing and experiencing consolidation and innovation. Indeed, FinTech financing volume is up 80% YOY with over $45bn raised YTD.
Key trends driving this market include:
- The emergence of new investor classes: strategic investors are becoming increasingly active as they recognise the need to embrace FinTech
- B2B sectors becoming more important. At the technology level, interest in AI and robotic process automatic (RPA) continues to attract attention alongside rising interest in InsurTech and RegTech
- Interest from internet companies. The successes of Ant Financial and WePay is leading FAANGs to look closely at the sector
The success of the FAANGs has raised some interesting implications for internet/digital media markets, such as:
- The value that can be created through the ‘marketplace vs merchant’ risk model, as shown by Amazon, which investors will continue to seek out given inherent scalability and profitability
- Consumers increasingly seeking trusted specialists to manage the most valuable aspects of their lives, which should lead to an emergence of trusted, vertically-focused players in, for example, finance and health
- Consumers are no longer valuing ownership of content as much as the ability to have ubiquitous access to it, such as through Spotify and Netflix. Traditional content owners are therefore well-advised to secure their channel to the market
- Connected devices/the ‘Internet of Things’ transforming consumer services and behaviour through products such as Amazon’s Alexa, meaning traditional original equipment manufacturers (OEMs) should invest/acquire to transform and monetise data
The telecommunications market is likewise experiencing strong activity and innovation:
- M&A valuations in the sector remain at a cyclical high point, with its strong growth, recurring revenue, cash generation and consolidation opportunities driving interest from the private equity industry
- Moreover, cross-border transactions and inbound interest remain at a high level, particular from the US and European markets
- This is partly being driven by the move towards hyper scale cloud, with AWS, Azure and Google cloud all growing rapidly
Managed service players are pivoting their offering to compete as pure cloud become an important element of consumer demand.