Creating value

beyond the deal:

technology, media
& telecommunications
Three key elements can make
even successful deals more fruitful
#BeyondTheDeal
Contents
Executive summary 1

TMT’s role in transformation 3

Value enablers 5

Divestor’s point of view 8

Critical strategic elements 10

Methodology11

PwC network contacts 12

About this report:

To help understand the factors influencing performance, we interviewed
100 technology, media, and telecommunications (TMT) senior executives from
a range of geographies about their experiences in creating value through M&A.
All participants in this survey had made at least one significant acquisition and
one significant divestment in the past 36 months. The survey included a
combination of qualitative and quantitative questions and all interviews were
conducted by telephone. All responses, where not attributed to our clients,
are anonymised and presented in aggregate.

This report draws on the insights gleaned from the study and the interviews,
and on our own experience helping clients navigate the deals landscape.
It offers a roadmap for how leaders should approach value creation within
their organisations to deliver the full return potential on the transaction.
Executive summary
Viewed through the lens of value creation from That’s because the TMT deals that are successful
mergers and acquisitions, the technology, media and tend to be very successful. We attribute this to the
telecommunications (TMT) industry stands out in a transformative power of technology in shaping the
critical way. Although the percentage of TMT acquisitions winners and losers of the future.
that create value is four percentage points lower than
other industries combined, the returns from ‘winning’ These telling results are a subset of the findings in
deals — those that add value to the acquirer — are PwC’s multi-industry study Creating value beyond
higher in the TMT sector than in all but one other the deal. The study analysed total shareholder returns
sector, and in some cases by a significant amount from thousands of global transactions in six large
(see Exhibit 1). industry sectors and elicited responses from 600
global corporate executives.

Exhibit 1
TMT sees ‘winning’ deals

Although TMT acquisitions overall created slightly less …TMT deals generated greater returns than in almost
value than those in other sectors… all other sectors

% of TMT acquisitions that created/lost value Average returns for ‘winning’ deals 12 months after
compared to all deals completion relative to industry benchmark

100% 87%
86%
77%
80%
67%
61%
60%
21 18 39%
40%

20% 40 39

0%
TMT (IM&S) CM HP EU&R FS
-17 -21
-20%
-7 -6
-40% All acquisitions
TMT Healthcare and
TMT acquisitions
pharmaceuticals (HP)
-60%
Significant Moderate Industrial manufacturing Energy, utilities &
value gained value lost & services (IM&S) resources (EU&R)
-8%
Moderate Significant Consumer markets (CM) Financial services (FS)
-100% value gained value lost

Source: Creating value beyond the deal: technology, media & telecommunications
Base: 2018 survey of 100 TMT executives on their most significant acquisitions and divestments, conducted in the preceding 36 months.

Creating value beyond the deal: technology, media & telecommunications 1

That study found that for all industries, including TMT,
companies can get more value out of M&As by focusing
on three elements:
Tech and telecom are the backbones
1 Stay true to the strategic intent: The organisation of networks, automation, data
needs to approach deals as part of a clear strategic
vision and long-term objectives for the business.
analytics, e-commerce, design,
Opportunistic dealmaking can create value, but not research and product development.
as often as strategic deals do.

2 Be clear on all the elements of a comprehensive

value creation plan: Ensure a thorough and
effective process for conducting the deal with the
necessary diligence and rigour around financials,
advanced analytics, operations, technology, tax,
legal and people matters.

3 Put culture at the heart of the deal: Keeping

people and cultural aspects up front in planning is
fundamental. Wide engagement and communication
of your value creation plan will help retain and build
buy-in from key personnel. Failing to plan for cultural
change will undermine the value created.

Savouring the potential for big gains from the right deal,
TMT companies — most of which live in fast-paced,
constantly shifting business environments — are drawn
to the ‘winner-take-most’ M&A dynamics in their sector.
As a result, their M&A activity has risen rapidly over the
past few years.

2 Creating value beyond the deal: technology, media & telecommunications

TMT’s role in transformation
Perhaps the most cogent explanation for why M&A in Given the unique role of TMT companies in
the TMT sector can be so lucrative is the role these transformation, acquiring new technologies or
companies play in the broader business landscape. products or expanding expertise in markets that
Chiefly, all three components in the TMT sector support digitisation can drive extensive growth.
provide the essential ingredients for transformation Indeed, in our survey, TMT executives pointed to
strategies in other industries. Tech and telecom gaining new products and tapping into new geographic
are the backbones of networks, automation, data markets as the top-two positive outcomes of M&A
analytics, e-commerce, design, research and product deals (see Exhibit 2).
development. Every sector needs these tools to digitise
operating models, drive efficiencies and differentiate These results are exemplified in Disney’s recent
themselves from competitors. period of growth spurred by content acquisitions,
including the popular Marvel assets. The US$4.24bn
Media, of course, may be viewed as a more stand-alone deal was announced in 2019 and has since turned a
sector. But the impact of media on global business profit of US$22bn for the company. They also show
disruption and growth shouldn’t be underestimated. up in the movement of telecom companies into
Tech giants Amazon and Google, to name just two, adjacent geographic areas by consolidating more
are also large players in media. And traditional media local businesses.
companies, such as Comcast and Time Warner,
have their hands in myriad commercial activities of
third-party companies across multiple sectors and
are tech developers themselves.

Exhibit 2
New products and markets provide revenue synergies

Q: Which of these revenue synergy drivers had the most impact?

69%
60%
29% 21% 21%
New products New geographic Cross-selling Improved pricing New customer
markets segments

Source: Creating value beyond the deal: technology, media & telecommunications
Base: 2018 survey of 100 TMT executives on their most significant acquisitions and divestments, conducted in the preceding 36 months.

Creating value beyond the deal: technology, media & telecommunications 3

The central role that TMT plays in transformation Since then, the company, now called Broadcom, has
not only clarifies why M&A activities in the industry leveraged its consolidation expertise and expanded
have such a significant upside; it also explains capital availability to acquire mature tech companies
the lofty deal valuations common in the industry. in ancillary sectors — including networking and
Consider two very different acquisitions that illustrate cybersecurity — while doubling its market capitalisation.
this dynamic. In 2012, Facebook’s US$1bn acquisition
of the popular but nascent app Instagram was viewed A byproduct of the expensive valuations of TMT deals
by many pundits as too pricey for a much smaller is that executives tend to extensively tap their personal
social media asset. Six years later, Instagram’s networks to seek out suitable M&A targets for their
user base has grown exponentially, and analysts companies before they are shopped around and the
estimate Instagram contributes more than US$1bn to price tag changes. Among the industries surveyed, about
Facebook’s market capitalisation. one-third of all deals originated from investment bankers,
the study found, but this figure fell to 28% in the TMT
Take also Avago’s strategy to consolidate mature sector. By contrast, about 50% of TMT deals emerged
semiconductor companies, which was fuelled by from negotiations with other executives, compared with
its US$37bn acquisition of Broadcom in 2015, the 46% in the other industries.
largest tech deal in history. That and subsequent
deals propelled Avago into the elite ranks of global

36%
semiconductor companies.

The proportion of respondents

reporting that client/customer
retention was a Day One priority.

4 Creating value beyond the deal: technology, media & telecommunications

Value enablers
It would be impossible to generate as many successful These value creation results echo the findings of the
deals as the TMT sector does without a strong emphasis overall multi-industry study. According to the broader
on value creation, which was a Day One priority in analysis, companies that had designed plans up front
35% of TMT deals, according to industry executives to maximise returns from intellectual property (IP),
surveyed. In turn, 28% of TMT deals created moderate people and culture integration, synergies, working
or significant value when value creation was accentuated capital extraction, and tax and regulatory policies
from the moment the acquisition closed (see Exhibit 3). outperformed their industry value creation benchmarks
by 14 percentage points on average in the 24 months
What’s more, more than one-third of the TMT companies after the deal was completed.
studied said a strong emphasis on value creation would
be a top-tier issue in their next deal. Clearly, TMT
companies haven’t been as focused on value creation
as they thought they could have been and realise its
importance going forward.

Exhibit 3
Prioritising value creation on Day One drives success

Value creation was a Day One priority in 35% of TMT …but deals with a clear focus on value creation from
deals, with customer retention just ahead… Day One generated superior deal value

Q: What were your priorities on Day One? Day One priorities by value created

30%

Client/customer retention
36% 25%
8
20%

15% 3
Value creation
35% 10% 20
8
14 4
5%
8
7
Changing operating model
31% 0%
-2
-2 -5
-5% -8
-12 -4
-10% -7
Rebranding
27% -15% Value
-1
Client/ Changing Rebranding
creation customer operating
retention model

Note: Figures add up to more than 100% because Significant Moderate

respondents could choose more than one priority. value created value lost
Moderate Significant
value created value lost
Source: Creating value beyond the deal: technology, media & telecommunications
Base: 2018 survey of 100 TMT executives on their most significant acquisitions and divestments, conducted in the preceding 36 months.

Creating value beyond the deal: technology, media & telecommunications 5

 Often, a targeted company’s culture
is already designed to encourage
innovation, whereas the new parent
outfit has a more rigid structure.

Interestingly, the only higher M&A priority for TMT Consequently, whether a TMT company is developing
companies was customer retention, the first choice TV shows, movies, podcasts, software, a new consumer
of 36% of survey respondents. Although it’s tempting product, a more feature-rich network, or an innovation
to focus first on maintaining acquired customers and in cloud design, the creative people it can retain after
revenues to avoid value destruction, our data suggests an acquisition — and the freedom those people have
acquirers should challenge this thinking, or at least to be creative within the acquiring company’s culture —
pursue a dual focus on retention and value creation. will ultimately determine the company’s status in
In our study, TMT acquirers that highly prioritised the market.
customer retention produced moderate or significant
value only 17% of the time. More troubling, these Often, a targeted company’s culture is already designed
transactions lost moderate or significant value 13% to encourage innovation, whereas the new parent outfit
of the time. has a more rigid structure. Maintaining and nourishing
the style and attitude of the less traditional company —
By contrast, corporate culture — particularly a perhaps a start-up — during the fragile post-deal period,
company’s openness to new ideas and innovation, as when disparate organisations are being integrated, can
well as its quick decision making and flexibility in the have a material effect on the outcome of the deal.
marketplace — is a significant differentiator and a value
creator. This is especially true for TMT companies,
whose M&A strategies are often driven by the need to
generate disruptive technologies and content.

6 Creating value beyond the deal: technology, media & telecommunications

This requires deciding which aspects of the culture That may keep some information within the organisation,
both companies should adopt and which should but, of course, it doesn’t prevent important people
remain separate. In fact, our survey found that cultural from exiting.
misalignment hurt nearly 70% of firms (see Exhibit 4).
Considering the structural shift wrought by digitisation
Another important focus of M&A should be retention of in every industry, it stands to reason that a majority of
key employees. When fewer than 5% of prized employees deals — 56% — in all sectors had a technology plan
at a targeted company left, 20% of deals generated in place at signing. But that figure rose to 85% among
significant or moderate value. When more than 20% of TMT companies, a high percentage that reflects the
key employees departed, virtually no value was created. significant capabilities that incumbent TMT companies
Sensitive to the influence of culture on the TMT sector — have developed in recent years involving the integration
and cognizant that in a very real sense, IP walks out the of technology, content and new features. Knowing how
door every night when employees go home — some TMT cultures and technologies will be integrated before the
companies are careful to set up firewalls after a deal so a deal closes and having a plan to retain top employees are
target company’s ability to innovate is not damaged. keys to creating value for M&As.

Exhibit 4
Culture mismatches and loss of talent hurt deals

Two thirds of TMT deals are regularly impacted by TMT deals which lost less than 5% of key talent
cultural issues, with 69% of deals with significant value materially increase the chances of delivering positive
lost impacted (negatively) by cultural misalignment deal value

Q: Did cultural issues hamper the realisation of Q: What percentage of target employees left that
value in this deal? you would have hoped to retain?

100% 25%

31 20%
34
80% 6
15%
55
60% 10% 4
14 1
5% 8
69 5 1
40%
66 0%
-2
-6 -2 -6
-5% -10
20% 45 -3 -3
-10%
-5
-15%
0% 0-5% 6-10% 11-20% 21-30%
TMT deals Significant Significant
value lost value created Significant Moderate
value created value lost
No Yes
Moderate Significant
value created value lost
Source: Creating value beyond the deal: technology, media & telecommunications
Base: 2018 survey of 100 TMT executives on their most significant acquisitions and divestments, conducted in the preceding 36 months.

Creating value beyond the deal: technology, media & telecommunications 7

Divestor’s point of view
Although many M&A discussions tend to view deals Exhibit 5
from the acquirer’s perspective, exploring why TMT Strong competitors drive divestments
companies sell off businesses unearths interesting
insights. Nearly one-third of TMT divestments stem from
strong outside competition for the unit, as opposed to Close to a third of TMT divestments were sparked
only 23% of divestments in the overall study (see Exhibit by the unit struggling against competition. Across all
5). This is likely a manifestation of the ‘winner-take-most’ sectors, competition was a strong driver, along with
approach, the survival strategy that many TMT geopolitical issues and raising funds.
companies have adopted.
Q: What was the main strategic driver
of the divestment?
Telecom providers and tech-platform companies such
as Takeaway.com frequently expand into adjacent or
100% 4
potentially profitable regions, as part of their business 7
growth plan, to widen their revenue stream. However,
7 11
if after a period of time the new unit doesn’t generate
strong results — perhaps because the market doesn’t 80%
evolve as quickly as expected or geopolitical and 18 19
regulatory obstacles hinder strong market entry —
the parent company may try to sell the lagging unit
rather than face the prospect of long-term losses. 60% 18
22
Geopolitical concerns weigh heavily in divestment
decisions. Many TMT companies — particularly in
the media and telecom segments — face extensive 40% 20
regulatory limitations on content, infrastructure, and 22
market penetration. When these policies become too
onerous (perhaps, better put, too expensive) to navigate,
20%
TMT companies are more likely to find a buyer and bail 30
out. This gives them the opportunity to shift resources 23
quickly into potentially lucrative acquisitions or product
development programmes before the opportunity
0%
slips away. TMT All-sector average

Anticipated technological disruption

Worth more to someone else than to us

Non-core business

Raise funds for other purposes

Reduce exposure for macroeconomic

and geopolitical reasons

Unit struggling against competition

Source: Creating value beyond the deal: technology, media

& telecommunications
Base: 2018 survey of 100 TMT executives on their most significant
acquisitions and divestments, conducted in the preceding 36 months.

8 Creating value beyond the deal: technology, media & telecommunications

TMT companies seeking to get the most value from Leverage the experience of others
their divestments can look to the following elements Divestors — especially those with minimal experience
for success: in this area — should take advantage of an array of
third-party advisors. The goal should be to use these
Develop a ‘divestment playbook’ advisors as early as possible in the process to help
Sellers need to develop consistent value-focused investors understand the opportunity and build their
messages based on thorough preparation and portfolio confidence over time.
review with potential buyers in mind. This demands a
solid methodology and a plan for handling the most Make the most of your people
awkward questions a potential buyer could ask. Again, the success or failure of any M&A deal, be it on
the buy or the sell side, hinges on keeping key members
Don’t leave due diligence to the buyers of the team. These employees, especially in the divested
Despite its potential to create value, many divestors companies, typically start to worry about their career
we surveyed say they carry out no vendor due safety long before a deal closes. Their exit decreases the
diligence at all. Successful divestors are heading off success of the deal and may even jeopardise a potential
difficulties at an early stage with vendor due diligence sale. The importance of engaging them early in the
efforts that reflect a more disciplined approach overall process and providing an incentive linked to the deal’s
to divestments. success were two key findings of the survey.

Explore the art of the possible Address legal complexity

Divestment plans should involve more than just the Much of a divestment’s potential complications stem
allocation of existing capital. They should consider and from separating out the entity being sold and making
map out the art of the possible. What could the asset sure that separation is done early enough so the entity is
being sold achieve with unconstrained capital, bringing ready to be broken off when it comes to market. Define
in much-needed new skills and bolt-on acquisitions? what you’re selling and examine the legal structure
This kind of approach will not only attract a wider pool holding that business within the group.
of potential buyers; it will also hold on to value through
the deal.

30%
Share of respondents reporting that
a unit struggling against competition
was the reason for its sale.

Creating value beyond the deal: technology, media & telecommunications 9

Critical strategic elements
Clearly, TMT companies are in a privileged position to be
able to use M&A as a value creation lever, with significant
potential upside. This will more than likely continue
because the disruption of industries by digitisation is a
relatively new phenomenon whose pace is only going to
increase in coming years. TMT companies are among the
most active digitisation providers, so those that choose
well when making acquisitions that bring new products
and technological advances under their roofs can expect
to widen their marketplace impact and revenue streams.

In many ways, the TMT sector is a beta version of the

overall M&A landscape and foreshadows what’s to come:
its higher returns from winning deals are in large part a
function of strong fundamentals in M&A activity in the
short and medium term. For consistent value creation
and preservation in M&A, TMT companies — like those
in other industries — would be wise to focus on being
clear on all elements of a value creation plan early in
the process, not wavering from the strategic intent of
the deal, and putting culture — and people — at the
heart of any transaction.

10 Creating value beyond the deal: technology, media & telecommunications

 Methodology
To understand the factors influencing performance,
we interviewed 100 TMT senior executives from a range of
industries and geographies about their experiences in creating
value through M&A. All participants in this survey had made at
least one significant acquisition and one significant divestment in
the past 36 months. The report includes transactions between
January 1, 2008, and December 31, 2016. The survey included a
combination of qualitative and quantitative questions, and all
interviews were conducted by telephone. All responses, where
not attributed to our clients, are made anonymous and presented
in aggregate.

Creating value beyond the deal: technology, media & telecommunications 11

PwC network contacts
China UK
Wilson Chow Jass Sarai
Global TMT Leader Leader of Industry for TMT
Partner, PwC China Partner, PwC UK
[email protected] [email protected]

Germany US
Jens Weber Rob Fisher
Germany TMT Deals Leader Global Technology Deals Leader
Partner, PwC Germany Partner, PwC US
[email protected] [email protected]

Spain Marc Suidan

Malcolm Lloyd US TMT Deals Leader
Global, EMEA and Spain Deals Leader Principal, PwC US
Partner, PwC Spain [email protected]
[email protected]

12 Creating value beyond the deal: technology, media & telecommunications

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