The pace of innovation across the TMT (technology, media and telecommunications) sector will continue to drive financial deal activity into 2014 and beyond, according to research from global law firm Hogan Lovells.
Hogan Lovells’ "Evolution Report" surveyed 240 board level members at leading global companies about the conditions required to reignite the global economy, with around 50 of them in the TMT sector.
The report highlights that seven in 10 board level executives in the TMT sector cited the drive towards product and service innovation as the most significant change in the industry since the global financial crisis, as they come under pressure to stay ahead of the competition and invest in new technologies.
This was a higher proportion than in any other industry. However, there are clear signs, said Hogan Lovells, that experience is driving companies in the TMT sector to increasingly pursue a wider range of deals than pure M&A ones.
Despite witnessing some of the largest M&A deals of the past 12 months (for instance, Dell and Silver Lake and Verizon and Vodafone), over one in three TMT respondents (35 percent) believe M&A had "failed to deliver clear and desired outcomes", the highest level of dissatisfaction of any sector surveyed.
As a result, boards will continue to seek out strategic partnerships as financial conditions improve, with the survey findings showing 68 percent of decision makers in the sector citing partnerships as a key strategy employed during the crisis
Peter Watts, partner at Hogan Lovells, said: “The dynamism of the TMT sector continues unabated. We see transaction numbers increasing, driven by the need to tap into change as well as by consolidation, improving financing conditions, and the need to increase share in existing markets and move into new ones."
He said: “In such a fast moving sector there is pressure to move quickly and compromise on risk. Flexible alternatives to pure M&A such as strategic partnerships are increasingly seen as nimble ways to manage these pressures. These partnerships will be an increasing feature of the TMT world.”
The research also found that TMT is the most cash rich sector, meaning companies in the sector can move into deals quicker.
The media sector is expected to see increased M&A activity, largely due to new ways of producing and selling content, which threatens existing business models.