Reflections from the 2018 EY TMT CFO Forum: Winning in highly competitive M&A markets
Will Fisher, Global Media and Entertainment Transaction Advisory Lead, EY & Rahul Gautam TMT Market Segment Leader and TMT Advisory Lead, EY UK&I
The TMT sector is at the forefront of rapid, digitally driven change. Recently, EY brought together some of the sector’s most influential and successful CFOs for an event with just one topic on the agenda: growth.
There are several factors currently making TMT an increasingly important sector for dealmakers. These include the macroeconomic tailwinds provided by relatively strong global economic growth and the expectations for corporate earnings, with three-quarters of TMT executives expecting them to improve in 2018, according to our Capital Confidence Barometer.
The return of PE buyers eagerly seeking opportunities in the market is another key theme that is likely to play out strongly in the coming year. Finally, perhaps the overarching driver for TMT companies is the need to seize the opportunities presented by rapid digital change. This rationale is behind a number of deal strategies, from convergence between big players to the acquisition of new, nimble digital natives that can support transformation and facilitate growth.
There are, then, a number of important and diverse drivers, but they all add up to one simple result: more competition. And that means higher prices.
Media and entertainment outlook
https://www.ey.com/gl/en/industries/media---entertainment/ey-capital-confidence-barometer
The question is, though, just how do those trying to accelerate growth through acquisition come out on top if they’re likely to be paying top prices in a sector that traditionally demands high multiples?
Pay more in, get more out
Justifying those high prices means squeezing out every drop of value post-sale. That may mean holding back from the traditional quick-win synergies and instead taking a longer and deeper look at how all parties can work together to create something bigger than the sum of the parts.
Pre-sale, detailed due diligence is essential before writing any cheques and tech compatibility is one key area that TMT CFOs want to be sure of before signing on the dotted line. The assumption that the acquirer must naturally lead its new constituent in all business processes, such as technology, should also be challenged. If they have a better system, it’s sensible to roll it out company-wide rather than impose the parent company’s template.
Discipline and strategy
Other approaches identified by participants of the EY CFO forum included looking for off-market sales, typically through building relationships with potential targets, and locking them in before other players enter the arena.
With deal discipline a vital factor in such a competitive market, having a clear and well-communicated acquisition strategy can be highly supportive. Not only can it help cut down the ever-expanding list of potential targets CFOs are commonly presented with, it also helps to keep investors and other stakeholders onside.
Unlocking the funds to drive acquisitions
Regular portfolio evaluation can also play a key role in accelerating growth, particularly if it’s done hand-in-hand with that all-important acquisition strategy. Are all your past acquisitions in line with your current needs and future strategy? If not, now is the time to divest non-core assets at a time when prices are high, creating new funds to help you win in an increasingly competitive TMT M&A market. To find out more, please read our latest publication — Media and entertainment companies divest to fund digital growth strategies
The views reflected in this article are the views of the author and do not necessarily reflect the views of the global EY organization or its member firms.