TMT dealmakers assess Covid-19 impact

A strange combination of uncertainty, panic, but also of quiet optimism is currently facing dealmakers, leaders and investors active in the TMT sector.

"Everyone is getting on their armour and going to battle. Not a huge amount is going on right now as we are waiting for markets to stop bleeding. But [...] after this is finished the M&A activity to follow could be fabulous," one senior TMT banker told TMT Finance.

Despite many transactions being put on ice, there is still a good number of advisers working on advanced stages looking to close them off, some with success. For example, MTN just closed its towers sale of ATC in South Africa, and last week Digital Realty closed InterXion, while Digital Colony and EQT closed Zayo, while TMT Finance reported on a number of other new or progressing situations this week.

As one banker put it: "We are not pausing anything for the moment, as long as the financing is still there then the deals will be. More of our financing work has "wider goalposts" than pre-Covid, but other than that we're business as usual."

One issue is the practical task of actual deal sign off or final negotiations, with the logistics of getting everyone around a table becoming rather challenging – an issue which you'd have thought the TMT sector would be well placed to get around, one source commented.

Some contacts are not so optimistic. One banker put the proportion of deals being pulled as high as 80%. Although it does depend on the sector. Robust looking areas in TMT include anything infrastructure or bandwidth related, healthtech, SaaS, datacentres, non-consumer fintech and cybersecurity.

"Healthcare software or SaaS will continue seeing activity since the excessive dry powder is still there from PE's, who'll remain key buyers in the space," one contact said.

Sources in Asia say Chinese buyers are hungry to invest in areas such as electronics, semiconductor and chip maker businesses – or anything needed for the 5G and IoT ecosystems. The valuations in these areas have gone up fast, one contact said.

Those in more trouble could include: hosting businesses which rely on SMEs, certain media businesses or those reliant on travel, live entertainment or in-flight connectivity, plus digital out of home, adtech and sports businesses, which one source said all look vulnerable verticals now.

One area which could see opportunity is public to private deals: "This isn't even rewriting the rulebook, no one knows what will happen. Everyone has pretty much written off 2020 and now it's a question of 2021. I've been doing daily calls to clients and funds to settle nerves. Deals have fallen over in the last few minutes and hours. Sponsors are calling around and seeing what they can take private."

While some credit will be harder to find, private debt is there for the right deals, and investors are still active, say sources. The usual opportunistic buyers are waiting in the wings to buy cheap, another source said.

Another said: "It is also likely that there will be more bond issue deals, as Fed has cut the interest rate, so debt financing will be cheaper and some companies will take the opportunity and look at issuing", while other financing bankers say that although the market is slow, they are working on new financing deals in telco and tech.

And: "Banks are still doing great, loads of financing opportunities but M&A has taken a slow down."

To make up for the predicted shortage in M&A, one bank said it was restructuring its team and M&A advisers are going into the debt and financing team, since more demand and activity is expected. 

Nevertheless, many bankers remain upbeat about the M&A pipeline, with one banker saying: "Pipeline is strong but investors are shy, so this is the time for adventurous buyers as price expectations are low but the quality of assets is still high." 

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