September 30, 2022
The role of technology in the economy is an ever-expanding one, with digital acceleration bringing with it a plethora of opportunities. With the enormous benefits for consumers and businesses globally, Technology, Media and Telecommunication (TMT) has shown radical growth since the sector first emerged at the beginning of the 1900s.
While its progression is impressive, it is the insight and knowledge about the future that Translink Corporate Finance and The Institute for Futures Research at Stellenbosch Business School (IFR) have explored in their latest sector report entitled Tomorrow: 2050 Alternative Futures for TMT.
Professor Andre Roux, Head of Futures Studies Programmes at Stellenbosch Business School, says that key uncertainty is a force which he believes is going to be extremely important in the years that lie ahead in determining the future of the sector.
“We can’t know what is going to happen by the year 2050, and which scenario might play out, but we are already witnessing some of the early stages of some patterns of each scenario in the current economy,” says Translink International board member, Marc Irisson. “Obviously each scenario will have a different impact on the M&A World.”
The known unknowns
A robust analysis process undertaken by the research team produced five driving forces demonstrating the highest levels of uncertainty, which in turn have the highest impact potential for the future. These include:
- Revisiting globalisation and supply chains
- Rising skills and labour shortages
- TMT’s dual role in creating a sustainable future
- Technological advancement
- Shifting economic power
“We took this a step further to identify the really important active factors, using a cross-impact analysis, and identified ‘Technological advancement’ and ‘Shifting economic power’ as the most important scenario shaping factors,” explains Roux.
These two factors were then used to frame four plausible scenarios.
Here is a synopsis of each of these scenarios and the corresponding impacts on M&A:
Red Scenario
In this scenario, economic power shifts to the East and the South, and technologies are developed and adopted in a rapid manner, with little regard for people, ethics or sustainability.
What this scenario could mean for M&A:
- M&A decisions are led by profit motives and competitive positions in new and existing markets.
- There is a notable race to acquire ‘the next technology’ and deals happen fast
- M&As are complicated by a combination of assessing where economic activity is shifting toward, and the complex regulatory environment resulting from the rapid advancement in technology development.
- There is a dual focus from global players to secure local supply, and, at the same time, to participate successfully in global markets through resilient global supply chains.
- ‘Killer acquisitions’ see major players make strategic acquisitions to ‘kill the competition’ and get the requisite competencies and talent to dominate the market.
“Deals will be driven primarily by profits or by the desire to eliminate potential competitor technology. Clearly, this will make this market very competitive and very aggressive,” says Irisson who explains that because M&As are going to be strictly regulated in the future, the context for deal-making will be complex.
Orange Scenario
Here economic power still shifts to the East and the South, with technologies that empathise with the imperative of protecting the planet, and its resources, being sympathetic toward human wellbeing, as well as considering ethical consequences.
What this scenario could mean for M&A:
- M&As in the new dominant markets of 2050 are carefully thought through; there is a particular focus on deals that consider the influence of technologies on the wellness of people as well as the Earth.
- Interesting deals happen to facilitate skills development for the TMT sector.
- Dealmakers have to navigate a strongly regulated TMT sector – a technology must pass the test of being ethical, and good for people and the Earth.
- M&A deals happen in previously dominant markets to secure local supply, and to solidify opportunities to participate in next markets through the establishment of resilient supply chains.
Antoine Tanguy, a partner at Translink in France, says that deals in this environment will need to pass the test of being ethical within a strongly regulated TMT sector and reputation will be very important for technology companies. “Ethics and reputation will have a significant impact on valuations,” he says.
Blue Scenario
“In this scenario, technology is developing fast and is fairly distributed throughout the globe,” says Irisson. We expect here that deals will be made based on ESG criteria, with some deals collapsing when it emerges that they are no longer compliant with certain criteria”. He says in this scenario, the regulatory environment will be tough, but the rules will be clear, making the navigation of M&A easier.
“Deals here are made to be interactive between organisations that share the same values, which are able to foster more skills development, and that also makes it possible to have flexibility in the way they work,” he says. “There will most likely be quite a good valuation here because these deals will be very strategic”. A very agile M&A team, and very speedy execution of deals, are what would be needed here.
What this scenario could mean for M&A:
- M&A decisions are made based on the increased fairness and responsibility criteria and expectations that are enabled through the deal and the technologies that are acquired.
- The well-considered regulatory environment is tough but clear.
- From 2022 onward, lucrative deals were found in M&As between organisations that focus on skills development and enabling work-from-anywhere for the TMT sector.
- Deals happen across previously well-defined sectoral boundaries, and some deals even create brand new intersectoral entities.
Purple Scenario
In the purple scenario, the TMT sector of 2050 finds itself in a situation where the countries of the world share economic and political power in a fair manner; however, technologies are developed and adopted in a rapid, irresponsible manner with little regard for people, ethics and sustainability.
What this scenario could mean for M&A:
- There may be a wider geographical scope for M&A deals in the purple scenario.
- The regulatory environment is less complex, resulting from increased collaboration between countries. Therefore, the transaction costs of M&As are attractively lower.
- First and fast movers gain advantages in the very competitive and volatile market space.
- Some M&As are forged to address earlier supply chain vulnerabilities.
“In terms of M&A, this would mean a very intense, quite aggressive and competitive landscape. Of course, the regulation would be less complex and more permissive,” says Tanguy. “First and fast movers would have a stronger edge in this competitive market”.
When asked which of these scenarios excites him the most, Irisson says that if you like a challenge, then the orange and purple would offer this, with the orange scenario, in particular, offering many opportunities. “The red scenario is one we would typically want to avoid and is not the place we want to be.”
YOUR PARTNER IN ANY POSSIBLE FUTURE(S)
Translink’s TOMORROW: 2050 future mapping series, a series of five reports which have already included unpacking the healthcare and industrials sectors, demonstrates Translink’s deep commitment to being a partner that our clients can rely on, now and in the future(s). The series celebrates Translink’s 50th anniversary, commemorating five decades of successful dealmaking.
As a world-leading corporate finance advisory firm with deep expertise in TMT and a track record of transactions across all TMT verticals, Translink is perfectly positioned to be at the cutting edge of M&A developments. Our global group of 24 experts has long-standing relationships in every corner of the world; it’s this that sets us apart. We get the deal done.
To read the full TMT report and the other sector reports in the TOMORROW: 2050 series, visit: https://www.translinkcf.com/50th-anniversary/
