Technology, media and entertainment, and telecommunications executives moderate their near-term dealmaking expectations

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Nov 29, 2018, 08:02 ET

NEW YORK, Nov. 29, 2018 /PRNewswire/ -- After the high levels of activity seen in recent quarters, 42% of technology, media and entertainment, and telecommunications companies (TMT) now plan to actively pursue mergers and acquisitions (M&A) in the next 12 months — down from 56% a year ago and slightly below the 44% long-term average across all sectors. This is according to the 19^th edition of the EY Global Capital Confidence Barometer (CCB), a biannual survey of more than 2,600 executives across 45 countries.

Notably, near-term dealmaking plans are much higher among companies with revenues over US$1b (65% of respondents plan an acquisition in the coming 12 months), which typically can allocate more resources to ongoing M&A activity than for companies with revenues below US$1b (23%).

Fast-changing regulatory and political headwinds are causing some companies to pause their dealmaking and assess the potential impact and redouble lobbying efforts. As such, 49% of executives said regulatory or governmental intervention, competition or antitrust reviews, increasing protectionism and trade policy were the biggest causes of failed deals.

At the same time, executives are demonstrating the discipline to walk away from deals when challenging conditions mean they do not make sense, with 96% saying they canceled or failed to complete a deal during the past 12 months — up from 76% in the last EY survey.

Transformative deals continue in the technology sector
Ever-increasing speed of innovation and pent-up demand continues to drive big transformative deals, despite lower overall acquisition appetite (40% of technology executives plan to acquire in the coming 12 months, a 12-point reduction from half a year ago). Although deal volume is slightly lower, year-to-date aggregate deal value is up 42% over a similar period in 2017. Coupled with major economic indicators viewed as stable to improving, strong private equity (PE) interest in technology companies and cross-sector buyers looking for a competitive edge with technology assets, deal activity should maintain current momentum.

Ken Welter, EY Global Technology Transaction Advisory Services Leader, says:

"The fundamentals remain robust, although executive outlook has softened. Many large tech companies view M&A as a pivotal tool to update legacy portfolios, seize new opportunities and stay ahead of the innovation curve. With thoughtful planning and disciplined execution, technology companies may still see a robust M&A market in 2019 — perhaps with fewer deals overall but larger and more transformational in nature."

Media and entertainment (M&E) executives maintain appetite for M&A despite policy headwinds
The high level of M&A activity in the media and entertainment sector is expected to continue, with 100% of executives believing the deal environment will improve or remain stable in the coming 12 months. Underpinning this enthusiasm is confidence in corporate earnings, credit availability and equity valuations — which 95% of executives expect to improve or remain stable in the year ahead.

Nevertheless, policy headwinds and deal competition are causing M&E executives to walk away from some transactions. Almost all respondents (94%) canceled or failed to complete a deal in the past year — up from 75% six months ago. In almost half of those cases (48%), concerns about regulatory, policy and antitrust interventions were the primary factor.

Will Fisher, EY Global Media & Entertainment Transaction Advisory Services Leader, says:

"M&A remains a core strategy for media and entertainment companies, particularly for mid-size and large players, as they look to equip themselves with essential content, talent and capabilities. We expect the recent high level of deal activity to continue, although there is now limited room for this to increase. Executives are, however, wary of policy and regulatory interventions and will be watching outcomes closely."

Competition for telecommunications acquisition targets rises
Telecommunications sector executives face rising competition for acquisition targets amid improving M&A outlook. Of those surveyed, 74% see rising competition for assets in the next 12 months, driven primarily by PE and corporate investment funds and their appetite for infrastructure assets.

The M&A outlook in this sector is set to improve, according to 76% of the sector's executives. Regulatory concerns, however, pose challenges to dealmaking, with 47% of companies citing it as the top threat.

Axel Majert, EY Global Telecommunications Transaction Advisory Services Leader, says:

"While the near-term acquisition intentions have dipped below recent record highs, convergence and consolidation continue to drive the M&A agenda for many telecom companies. Though market fundamentals remain positive, regulatory and government issues emerged as the biggest cause of failed deals and as top threats to future dealmaking. This is exacerbated by intensified competition for acquisition targets and global anxiety over increasing geopolitical uncertainty."

Notes to editors

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About EY Global Capital Confidence Barometer

EY Global Capital Confidence Barometer is a biannual survey compiled by Euromoney Institutional Investor Thought Leadership of more than 2,600 senior executives from large companies around the world and across industry sectors. This is the 19th biannual CCB in the series, which began in November 2009; respondents for the 19th edition were surveyed in August and September 2018. Respondents represented 14 industries — including technology, media & entertainment, and telecommunications, with 569 senior executives from the TMT sectors. The objective of the Global Capital Confidence Barometer is to gauge corporate confidence in the global and domestic economic outlook, to understand boardroom priorities in the next 12 months and to identify emerging capital practices that will distinguish those companies building competitive advantage as the global economy continues to evolve. ey.com/ccb #EYCCB

Virginia Milazzo
EY Global Media Relations
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SOURCE EY