UK Trends and Developments Contributed by: Ronnie Preiskel, Karthyaeni Vittala and Daniel Preiskel, Preiskel & Co
TMT firms are making significant strides in address- ing climate change and promoting sustainability. The ongoing deployment of low Earth orbit (LEO) satellites continues, despite concerns about potential collisions. In higher orbits, the development of radiation-resist- ant microchips is revolutionising space technology. In addition, virtual production techniques are becoming integral to modern blockbuster films and the emerging metaverse, shaping the future of entertainment and digital experiences. Current TMT M&A market trends The increasing availability of AI, along with the ongo- ing development of AI-driven processes and genera- tive AI, has positioned software as the primary driver of M&A within the TMT sector. According to PwC, nearly 70% of the top ten technology deals by value in the first half of 2024 were software-related, amount- ing to over USD70 billion. Companies are increasingly integrating AI systems into their products across various secondary sectors, such as energy, hospitality and professional services. This integration has enabled them to secure multiple funding rounds, highlighting the growing importance of and investment in AI technologies. The demand for AI and the digital infrastructure required for its implementation has led PE funds and investors to prefer direct capital investments in AI pro- cesses over traditional M&A activities. This shift has necessitated PE funds exploring innovative strategies to generate liquidity for their investors. Furthermore, the valuation of UK companies remains lower than pre-Brexit levels. Strategic corporates are taking advantage of this discount to diversify and con- solidate their respective markets, using the current economic landscape to their benefit. Advancements in AI and its applications are reshap- ing investment strategies within the TMT sector, with a notable shift towards direct capital investments in AI technologies, rather than through M&A. This trend is expected to continue as AI becomes increasingly integral to various industries, driving both innovation and economic growth.
Geopolitical tensions continue to impact M&A, with strained US–Chinese relations creating significant market and regulatory uncertainty. Furthermore, the Dutch government’s seizure of domestic chipmaker Nexperia from Chinese-owned Wingtech could have a chilling effect on investment in China-linked firms due to fears of forced divestments. Smaller deal values In today’s competitive landscape, many businesses view digital transformation as a strategic opportunity to secure the “early bird” advantage over their com- petitors. For others, the focus is on achieving opera- tional efficiency and stringent cost control to boost profit margins. Over the past year, there has been a notable surge in AI-focused transactional activity, a trend which shows no signs of slowing down. Technology-driven companies continue to attract the highest valuations, encouraging shareholders and management teams to explore various investment and exit strategies. Inves- tors are becoming more risk averse, with acquirers opting for more modest transactions, rather than tak- ing a gamble on Seed or A-Series targets. A series of 49 so-called “mega-deals” worth more than USD10 billion – such as the recent USD55 billion buyout of video game company Electronic Arts, reveals an appetite for targeting well-established businesses. Recent interest rate cuts by the European Central Bank may be a nod towards further interest rate cutbacks. These long-anticipated interest rate cuts are set to be a welcome relief for dealmakers aiming to use debt to finance acquisitions. In the current climate, higher interest rates have been squeezing returns, placing greater emphasis on the value creation potential of deals. This shift in focus has become particularly con- cerning for some start-ups, which find the heightened scrutiny challenging. Evolution of deal structures Valuation differences have led to the rise of perfor- mance-based deal structures to bridge pricing gaps. Earn-outs have become more sophisticated, now not only measuring financial outcomes to support return on investment but also validating broader assump- tions that underpin the investment case and benefit
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