Eaton Square Releases Global Outlook 2020 for Technology, Media and Telecoms M&A

MELBOURNE, Australia, Nov. 19, 2019 /PRNewswire-PRWeb/ -- With the end of 2019 on the horizon, senior Principals at Eaton Square publishes their expert opinions on trends they see emerging in the M&A market specifically in technology, media and telecommunications.

Learnings and Outlook in Tech M&A

"The mainstreaming of the Digital Transformation trend continues to drive acquisition demand for technology services businesses and digital transformation platforms. We are seeing prices for digital transformation skill sets at the upper end of historic multiple ranges, especially for businesses that have hard-to-source skills sets. Key skills that are in demand include those associated major enterprise SaaS platforms such as Salesforce, Workday and ServiceNow, plus strong demand for skills across the spectrum in Cybersecurity.

    --  The market for cybersecurity solutions and services continues to grow
        with no abatement. Especially in toolsets that integrate with most
        mainstream solutions and the latest digital platforms. Demand for
        skillsets in this sector is especially strong.
    --  The growth of Private Equity in the IT Services sector is also pushing
        up the process and giving sellers an option beyond just strategic
        buyers. Some sellers are attracted to working with Private Equity as it
        enables them a 'second exit' which is relatively new to the services
        sector.

Fearless Forecast for 2020

    --  The availability of low-interest debt is expected to sustain the market
        for acquisitions as it remains cost-effective to purchase growth in
        addition to pursuing organic strategies.
    --  PE Funds will continue to bulk up portfolio companies with bolt-on
        acquisition to accelerate growth and leverage the buy/sell arbitrage
        from buying sub-scale business and selling market share leading
        platforms
    --  We see a decline in funding for 'Field of Dream' strategies that rely on
        spending big to capture market share outside the US and minor players
        struggle to gain sufficient scale to dominate globally." - Neil Bourne,
        Eaton Square Managing Principal (Sydney)

"Consolidation is likely to continue where technology provides a distinct competitive advantage to the larger players. Sectors such as financial services and banking in North America are key.

Fearless Forecast for 2020

    --  Developed regions and jurisdictions such as the UK, Canada and Australia
        have seen their currencies lower to represent good value for a variety
        of local political and economic reasons. 2020 is a good time for
        value-based cross-border acquisitions, especially for leading technology
        expertise.
    --  Mobile commerce has yet to hit North America in the way Asia and many
        parts of Europe have adopted, especially in terms of cashless/cardless
        transactions. We expect many acquisitive plays to help a variety of
        players leapfrog the time needed for organic growth; think large tech,
        telco, digital retailers and more!
    --  The onset of 5G Networking is a game-changer. It will allow for
        applications previously unfathomable due to latency and reliability
        issues. We expect to see determined M&A activity as enterprises seek to
        gain early-mover advantage in their chosen fields." - Andrew Light,
        Eaton Square Managing Principal (Canada)

"During 2019 we saw a significant shift in technology investing and the geopolitical landscape. Some takeaways in looking back over 2019 are:

    --  Huge upswing in engineering subcontract organizations. They are now very
        niche-oriented towards specific disciplines of talent vs centralized in
        a low-cost region such as India. In software, for instance, they are
        more interested in Programmable logic or ASIC development vs the
        previous push for simple web designers. RF, OPTICS, POWER etc. are all
        other discipline-specific groups that have had a surge of acquisition.
    --  Multiples on tech plays seem to differ from strategic investors vs
        straight financial investors. Strategic investors seem to perceive a
        multiple 30% higher as valid. While this is not necessarily new its
        worth being aware of.
    --  All hardware companies become software companies ultimately; this is not
        a new concept but with the advances of Internet of Things (I0T) and
        Artificial Intelligence (AI) as a front end for everything electric, it
        seems to be an accelerating trend.

Fearless Forecast for 2020

    --  Telecom Original Equipment Manufacturers (OEM) will once again thrive as
        revenue will flow to the inventor vs the channel. There as been a void
        in telecom R&D efforts due to low margins and with the IoT demand it
        will push need over cost.
    --  Regardless of what General Motors and the Media are telling you, there
        is a significant part of key automotive companies, software companies
        and computer companies all investing in smart cars, autonomous driving,
        sensor tech, EV tech etc. Volkswagen and Ford are trying to lead the
        investment bandwagon. Most automotive companies have stopped R&D
        investment in combustion engines. This investment and lack of investment
        will show itself more and more as the year goes on.
    --  IoT will have a five year + reign on consumer electronics, if it's
        electric it can be controlled and interconnected through a local area
        network.
    --  Food Tech is only just beginning. With just over a billion capital
        raising over the past 18 months and there are only four significant
        sized players in the market. As the product has now moved to the fast
        food industry this trend will continue due to the rapid expansion of the
        market. Major R&D investment such as Independent Chemists, labs and such
        will dominate this acquisition space
    --  Fabless, R&D less and office-less virtual companies are becoming the
        norm. Ideas can be brought to market with a very small indirect cost but
        considerable direct costs. With the onset of WEWORK and other co-working
        environments, firms are hiring based on talent/cost vs geography. This
        will have a positive effect on mid-market cities.
    --  The new dinosaurs in 2020 and beyond are a number of tech/business tools
        and products which will disappear. For instance, the office telecom
        system (Pollycom, Cisco etc. will hurt), cubical farms and large office
        footprint will diminish (hurting the Herman Miller type companies),
        physical cash and cash management infrastructure will go away with EPS
        and, tap and go plus Cryptocurrencies (hurting firms like NCR, IBM,
        Brinks etc.), and remote controls and such will disappear as your phone
        will become a master remote control for everything tech in the home." -
        Matthew Pritchard, Eaton Square Principal (Hong Kong)

Summary

Despite the economic challenges, Eaton Square Principals report a positive forecast that mid-market mergers and acquisitions in Tech will continue to be an important source of innovation and growth in 2020.

"With the onset of 5G and the speed of advancements in AI and IoT, we see 2020 as a good time for value-based cross border acquisitions." - Reece Adnams, Global Managing Principal, Eaton Square

SOURCE Eaton Square