What challenges will Technology, Media & Telecommunications (TMT) dealmakers face in 2023?

Here we expect mid-market investment to recover quicker than the large-cap end of the market. Confidence is vital, and private equity investors will be looking for more certainty in the market, both from a valuation perspective and debt availability point of view, before launching processes. Portable debt could be used in some situations as a short-term fix to any debt availability issues.

Private Equity funds will continue to look to bolt-ons to achieve value arbitrage and strategic bolt-ons for scale and product or capability. Both funds and corporate buyers have significant firepower: the former is in dry powder or undrawn commitments from LPs, while the latter is in cash and facility headroom. So, the critical drivers for ongoing activity will be down to willing sellers, with no value gap between sellers and buyers, and the quality of the assets they are selling. The UK heading towards higher taxes could help encourage private owners to sell now and accept the trade-off of lower valuation but lower (or at least known) taxes.

The growth market of venture capital and growth funds faces some challenges. Valuations have cooled, and founders and management teams are looking to avoid down-rounds, where valuations reduce from one fund-raise to the next, as they face equity dilution in these scenarios.

We could see venture debt favoured over equity, as well as companies applying more control over costs and seeking to maximise cash by applying the brakes to recruitment and aggressive growth investment. In many cases this will no doubt lead to paring back costs through redundancies. M&A and business combinations could be a theme in 2023, either to buy enterprises running out of money or as a defensive measure.

Notwithstanding the current headwinds faced by high growth companies, the segment is stronger than ever, as we explored in our recent Fast 50 Insights Report.

Given the breadth of subsectors and revenue models in the media sector, there will inevitably be winners and losers. Streaming platforms are facing some tough challenges. Whilst their appetite for content remains strong, consumers suffering the squeeze on disposable income will likely look to pare back some of their subscriptions, which could ultimately affect the level of production budgets. However, there may, in turn, be more focus on password sharing to reduce value leakage, while advertising-based video on demand (AVOD) is currently an unknown. What will it mean for advertisers, what will the uptake be, and how will it be passed onto production budgets and content?

Regardless, ad tech will likely be more resilient because of its focused, targeted nature and the potential boost from AVOD. The cookie's demise has all but washed through the system, with strategies around customer data flexed accordingly.

Music as an asset class has cooled a little following a period of frenetic activity, and whilst the continued growth in global music streaming and the return of live shows post pandemic continue to provide industry tailwinds, M&A valuations may need a reset following a number of stalled sales processes.

Take a look at our M&A team’s perspective on industry trends and how they are shaping media deal making into 2023.

Sports, particularly football clubs, have continued attracting US buyers' interest. Several high-profile European clubs changed hands during 2022, and there remains speculation around others, so this will likely continue to be active as we head into 2023. Watch our Sports M&A market outlook to find out more.

Investment into the Metaverse is surging. Use cases are still crystallising, the technology is still developing, but it will likely drive M&A for the next decade and will shape how brands interact with consumers beyond that.

We see telecoms as a relatively defensive sector. Though, we do expect some consumers to spin down to cheaper packages which will drag on the growth in average revenue per user driven by inflation. We also expect cost inflation to continue to drive pressure on operators to transform costs. These pressures further drive the need for consolidation and we expect this to be a key theme for telecoms M&A in 2023.

In particular we see the potential for fragmented fibre network markets to consolidate given increasing over-build and the market share challenge this implies. We also see the potential for larger scale strategic M&A (for example, in-market mobile operator consolidation) to drive synergies for the parties involved and this could help bring market repair overall. Additionally, there is still appetite among operators to move into adjacencies to drive growth (such as the Internet of Things and security). We also expect to see further digital infrastructure deals with PE and infrastructure funds, especially as the macro-economic climate settles.

Get in touch if you would like to discuss how the current economic landscape may affect your TMT 2023 M&A agenda.

You can also explore our other M&A market outlooks for 2023.