Global trends highlight that PE’s interest in the TMT sector is a story of two tales – with one being a continued investment in emerging high growth companies with next-generation technologies (with a focus on software), and the other is a newer and increased focus on the regeneration of telcos.
In recent years and as highlighted by our Private Equity in Review, telco investment has been attractive for PE, given that many of their systems – such as copper line networks – require a vast amount of capital to boost them back into relevance. Whilst costly, communications infrastructure sets the foundation for both the digital economy and the development of smart cities – which utilise technologies such as fiberoptics, 5G, IoT – and the result is boundless growth opportunities for digital infrastructure investment.
The pandemic has also highlighted that the digital infrastructure market is stable despite other sectors being affected by geopolitical tensions and volatility – it also operates within a highly regulated environment, and will continue to as protectionism grows.
Technology's ability to keep a world connected both through leisure and work cannot be underestimated – with an assortment of activities that harness it being observed over the past two years - namely the e-commerce boom, as well as data storage, and network security.
This flow-on effect from the Pandemic has also been observed in the media arena, with the previous year seeing a boom in media assets, including pay-tv and broadband operators; digital media and digitally enabled marketing, including content and entertainment and of course software.
‘Listenership’ is also on the rise and will continue to grow. As highlighted in BDO’s latest Media Talk, podcasting is a hot sector and is also likely to be an attractive market for PE investment, given that so many are built on a subscription model and there is potential for licensing and royalty revenue on top of traditional ad sales.
Over the next year, we expect TMT deals will continue to lead PE deal activity, with PE dealmakers going beyond and investing in the advancement of technology as companies and countries continue to adapt to the change in consumer demands to be digital, as well as the inevitable consolidation in the market. Additionally, in harnessing emerging tech trends, we expect PE to invest earlier through either co-investing with or providing exit opportunities to early backer VC funds on TMT deals.
Sebastian Stevens
Technology, Media & Entertainment and Telecommunications