Investors tune in to media

By Andy Morgan and Nathan Reay

While overall TMT volumes remain subdued in Q3 2024, there was an uptick in media deals. Andy Morgan and Nathan Reay explain why and examine other trends impacting M&A.

Technology, media and telecommunications (TMT) continues to be an active sector for M&A, with media and software deals becoming increasingly popular.

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While transaction volumes remain far from 2021 and 2022 post-pandemic peaks, Q3 was 2024’s busiest quarter. We’ve seen  activity ramp up significantly in the start of Q4 as transactions were inked ahead of the end-of-October Budget and the market starts to see the benefits of interest rate reductions and the potential for an improving consumer landscape.  The outlook for 2025 is positive, with post-Budget clarity on capital gains tax (CGT) providing much needed certainty, and a higher CGT tax environment not as large a rise as many feared, enabling business owners to move forward with transaction planning.

In the October run up to the Budget, we completed 16 TMT deals, with a cumulative value of over £300 million.

How we helped in Q3

TGI buys Supponor

We advised the shareholders of Supponor, the live media virtual advertising specialist, on its July 2024 sale to sports technology and media rights firm TGI Sport, backed by Bruin Capital. The deal expands the latter’s capability to deliver virtual ads across live sports broadcasts.

Iomart buys Atech

We provided vendor due diligence to Atech Cloud on its sale to Iomart Group. The addition of Atech, a Microsoft Solutions Partner, strengthens Iomart’s position as a provider of secure cloud-services across public, private, and hybrid environments.

Havas buys DMPG

We provided due diligence to Havas on its September 2024 acquisition of digital data agency DMPG. The move gives Havas’ clients across its three global practices – media, creative, and health – access to data capabilities which deliver and measure business impact across their omnichannel marketing activities.

Deal volumes

Quarterly TMT M&A volumes

Graph- Quarterly TMT M&A volumes

Source: CIQ and MegaBuyte

The M&A market continued its 2024 trend of treading water; however, there were some potential positives with a slight uptick in TMT deal volumes in Q3 2024, delivering the best quarter performance since Q2 2023.   

Total transaction volumes increased by 5% compared to Q2 2024 and Q3 2023.

Media and software provided the bright spots, with increased deal numbers in comparison to Q2 2024, while transaction volumes continued to be subdued in IT services and telecoms, with material declines in activity levels recorded. The impact of higher for longer interest rates continues to bite in these segments where activity tends to be heavily driven through the activity of debt-leveraged buy and build platforms.  

Q3 TMT deal volumes by sector

Total Total IT services Media Software Telecoms
  No. of deals  
238
62
30
132
14
  QoQ % change  
+4.8  
-6.1
+30.4
+10.9
-26.3
  YoY % change  
+4.8  
+21.6
+76.5
+10.0
-64.1

Five factors driving media’s recovery

Valuation of publicly-quoted media companies

Average 2020 2021 2022 2023 YTD 2024
Media
27.11x
26.43x
13.98x
17.88x
18.58x

Q3 media deal volumes increased by 30% quarter-on-quarter and 77% year-on-year.  

The following factors are driving interest in the sector, which has undergone upheaval since the pandemic due to changing consumer habits, new technology, and what has been an unfavourable economic climate for advertising:

  1. Private equity (PE) interest is increasing in people-led agency businesses, from full-service media to specialist advisory, which are leveraging technology.  AI adoption is providing some rocket fuel to this trend
  2. Media companies, both ‘old’ and ‘new,’ are seeking to reduce risk through diversification. This might mean more rapid technology adoption or entering new business areas.  Both are providing M&A impetus in the sector
  3. The media ecosystem is rich in big data. Companies that can harness this effectively, particularly in the advertising space, will be on investors’ lists.
  4. The rise of podcasting has created an advertising ‘race for the ear.’ This will make audio tech/media companies a hot target for investors.
  5. Record-busting stadium tours by high-profile musicians in 2024 demonstrate that LIVE is definitely back, with the public embracing face-to-face events. Increasing distance from COVID-19 gives investors a clearer picture of the ‘new normal’ when evaluating assets in this space.  

Q3 2024 media deals

  • In September 2024, Old Queen Street Ventures acquired The Spectator for £100 million
  • In August 2024, digital marketing specialist Gaming Innovation Group acquired SEO and content services provider, Titan

Trade deals increase

Deal activity (excludes deals with undisclosed buyers)
 

Graph - PE activity

Source: CIQ and MegaBuyte


Deal stats - Q3 2023 (excludes deals with undisclosed buyers)
 

Graph- PE stats q3 2023

Source: CIQ and MegaBuyte

The M&A pendulum moved materially towards trade acquirers in Q3, with the volume of TMT trade deals increasing by 39% compared to Q2 2024 and 14% compared to Q3 2023. Certainty of transaction deliverability has come increasingly into focus for sellers. When coupled with synergy potential for strategic trade, the need for revenue diversification and the greater impetus and desire from boards to drive inorganic growth, this has made trade a more attractive option for many shareholders looking to crystallise value.

The number of stand-alone PE-deals in Q3 2024 still increased by 18% compared to Q2 2024 and 15% compared to the same quarter last year, so it hasn’t been a dead quarter for PE by any means. The real step down has been in the number of PE-backed trade acquisitions, which fell by a notable 51% compared to Q2 2024 and by 16% compared to the same quarter last year.  We expect this is more down to platforms taking a breather, and the segmental shifts in IT services and telecoms consolidation activity evidenced in the quarter, than any long-term change in the attractiveness of buy and build platforms.  We expect a return to normal activity in Q4 and into 2025, aided by an expected acceleration in interest rate reductions. It’s noticeable that a number of PE houses are still sitting on funds that need to be invested within a rapidly shortening timeframe.

Public software valuations continue to outperform SaaS

Is there still a premium for SaaS companies in the software market?

Software Valuation trends

Software Valuation trends

Source: CIQ and MegaBuyte

The once material valuation premium for Cloud and SaaS software models has disappeared since Q1 2022 as investor tastes shifted from high-growth to profitable-growth software companies. What’s new in Q3 2024 is the divergence in favour of traditional software valuation multiples over the SaaS Cloud index. At one level this reflects the market focus on scale and profitability, with continued investment in tech rather than ground-breaking solutions.

Perhaps the reality is that the distinction has become less relevant – software is software.  You either have a sustainable and profitable growth strategy - which by its nature must have cloud and AI as a central component - or you don’t.   The ‘have nots’ just don’t get funded or transacted rather than it being a valuation differential point.

 

IPOs and an alternative route to liquidity

The much-heralded Raspberry Pi IPO in Q2 was never expected to trigger an avalanche of new entrants to the public markets, but we did see two rare tech IPOs in Q3, both from UK-based AI companies: IntelliAM listed on the Aquis Stock Exchange and Rezolve AI joined NASDAQ.

Separately, Private Intermittent Securities and Capital Exchange System (PISCES), regulations are expected to be finalised shortly. PISCES is designed to allow private companies to trade their securities in a controlled environment and on an intermittent basis. Additionally, the recent Budget has confirmed that share trading on PISCES will be exempt from Stamp Duty.

The ability to introduce liquidity to shareholder registers is expected to support companies prior to an IPO, allowing them to have controlled exposure to trading in the company’s shares and the type of disclosure regime being ‘public’ would entail.

We expect this to suit a number of PE houses supporting TMT ‘unicorns,’ which aren’t quite ready to transition but where the introduction of liquidity would benefit investors and management teams.

What’s driving TMT M&A?

PE take-privates

The ongoing disparity between public and private valuations continued to drive strategic acquisitions and take-private activity in Q3 2024.  

However, the offer has to be right: Rightmove Group turned down a takeover bid from Newscorp owned REA in September 2024, reflecting confidence in its business proposition and its ability to thrive in the public market.

Going private in Q3

In July 2024, US PE firm STG Partners completed its take-private of UK fintech Gresham Technologies.

In September 2024, KKR completed its acquisition of geospatial software developer IQGeo, which was listed in London.  

In September 2024, Bloom Equity completed the take-private of GRC International, a governance, risk, and compliance software and consulting specialist. We worked with GRC as its nominated adviser on its IPO in 2018.

Upbeat valuations drive PE exits

PE exits are starting to pick up after a quiet 2022, notably in software. Examples in Q3 2024 include Inflexion’s sale of travel technology specialist Atcore Technologies to French travel software specialist Travelsoft, backed by Capza; Beech Tree Private Equity’s sale of Microsoft focussed digital transformation specialist Transparity to Bowmark Capital, and Oakley Capital’s sale of digital learning platform, Ocean Technologies Group.

Private company valuations Q3

EV/Sales multiple Software IT services
  Quarterly-end valuation  
4.9
1.4
  Five-year average  
4.6
1.9
  Quarterly change  
0.6
0.6
  YoY change  
1.9
-1.0

Carveouts continue

As mentioned in our last report, carveouts are a growing driver of M&A as technology firms seek to dispose of non-core assets.

There were four carveout deals in Q3 2024. Notably, Capita disposed of Capita One, its standalone software business, to MRI Software in a £200 million deal as part of a strategic review to focus on core activities and strengthen its financial position. On the Media side, Wilmington plc also sold its UK healthcare business to Inspirit Capital, following the sale of its French healthcare unit earlier in the year, to double down on a pure play focus on GRC in regulated markets.

Debt gets competitive

TMT remains one of the most active sectors for lenders attracted by a combination of high growth, strong cash generation, and  significant levels of recurring revenue.

Despite this, new issue lending levels are inextricably tied to M&A volumes. As TMT M&A activity has been flat over the last year, most debt has been deployed for refinancing or extension of existing facilities.

However, we’re seeing competition among lenders to finance new TMT deals, which has led to increased funding options, a reduction in interest rates and greater flexibility in terms. Debt funds have been particularly active as they vie to deploy capital.

Ability to service debt remains a primary limiting factor on leverage over the past two years. We expect to see this slowly lift as central bank base rates and SONIA  come down, but we have also seen lenders increasingly open to non-cash pay (or PIK) interest as an element of the interest rate, together with the benefit of the reduction in margins seen in 2024.

 

A rise in both capital gains tax and the tax rate applied to carried interest had been widely expected in October’s Budget but the level of increase remained a key question. Effective immediately, the Government has announced that capital gains tax (at the highest level) will rise from 20% to 24% and from April 2025, the tax on carried interest from 28% to 32%. 

While any increase in taxation has impact, the level announced still presents an attractive environment for management incentives and investors and is unlikely to discourage ongoing deal activity. The revised rate still represents a favourable reward for taking entrepreneurial risk and, indeed, entrepreneurship continues to be encouraged with Business Asset Disposal Relief (BADR) being retained, albeit with the rate increasing over two years to 18%. We, therefore, expect the impact on M&A to be less severe than anticipated with the announcements ensuring the UK remains an attractive and internationally competitive environment for investors. 

The bigger impact on the deals market will likely come from the increases in Employers’ National Insurance and the national minimum wage, and the subsequent impact on underlying earnings and valuations. We also expect the proposed changes to inheritance tax on business assets, with the restriction of business property relief to £1 million at 100% and 50% thereafter from 6 April 2026, will result in family businesses having to engage more with their future succession-planning strategies given the tax cost of not having a plan is now material.  In addition to accelerating family succession plans, such discussions will inevitably lead to more deal activity.

Also highlighted was the Government’s plans to reform carried interest rules to make them "simpler, fairer and better targeted" from April 2026. This gives fund managers sufficient time to fully understand the proposed changes to ensure that both existing and new structures remain compliant with any updated HMRC guidance.

You can find more insight on our Autumn Budget response

TMT dealmaking is set to take off in 2024 and beyond

Deal processes have accelerated since the Government set the date for the Budget. This undoubtedly created a spike in deal completions in October.  Equally, many TMT businesses have prepared to go to market once there was clarity on the capital gains tax position, in order to outrun the possibility of future increases in CGT. With interest rates now on a downward cycle, and the prospect of greater political clarity following the elections in the USA, we expect an increase in Q4 deal volumes with positive momentum continuing into 2025.

For more insight and guidance, get in touch with Andy Morgan or Nathan Reay.

Get in touch with our experts

Andy Morgan
Andy Morgan
Head of TMT, Corporate Finance Advisory
London
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George Fieldhouse
Partner, Head of Debt Advisory
London
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Samantha Harrison
Samantha Harrison
Director
London
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