Technology M&A deals in the UK increased by a third between Q2 09 and Q2 10, according to a study by consultancy Ernst & Young. But to what extent is this affecting telecoms?
Speaking to TelecomFinance, Neil Hutt, Ernst & Young UK Technology Transactions…
Technology M&A deals in the UK increased by a third between Q2 09 and Q2 10, according to a study by consultancy Ernst & Young. But to what extent is this affecting telecoms?
Speaking to TelecomFinance, Neil Hutt, Ernst & Young UK Technology Transactions Partner, said he expected the level of M&A across the technology and telecoms sectors to continue. “The trends driving technology M&A are unlikely to abate soon: the global shift to “smart” everything, the increasing mobilisation of business and personal information and continued sector consolidation fuelled by innovation.
Regarding the topic of convergence between technology and telecoms, he said “the real question is has there actually ever been any meaningful consolidation of these sectors? I’m struggling to think of any significant telco buying a reasonable scale tech business or visa versa. Most big telcos do dabble in IT services, but this tends to be on a communications basis rather than for the purpose of high tech innovation”.
He didn’t see telcos and technology companies competing as such, but did think that the tech groups had the upper hand in the battle to win the end customer: “Few people were put off buying an iPhone just because it was originally only available on one network”
Asked about the translation of convergence into big-ticket M&A, Hutt responded, “Interestingly the real convergence may come through another industry the media industry – with the likes of BT getting increasingly interested in TV and other content for its broadband customers that may be a route to getting into real technology businesses.
And looking at telecoms companies such as BT and Deutsche Telekom that have sought expansion via IT service businesses, he thought there was room for the parent companies to benefit “if they stick to what they are good at, which is helping large businesses ease their communications challenges”.
In the survey, Hutt commented: “Leading technology companies are sitting on a lot of cash. The aggregate value of cash, short-term and long-term investments of the top 10 technology companies has grown 30% year-over-year to US$258bn. With cash reserves of this magnitude, these companies still have the financial flexibility to focus on building revenues through organic growth and M&A. They are well-positioned to execute on attractive deals when the timing is right.”
He cautioned, though, that M&A activity would remain difficult to predict over the immediate near-term since it was at the mercy of macroeconomic conditions.
