COVID-19 Impact on M&A
The IT & Telecom industry saw a small increase in transaction volume in December 2020 compared to the same month in 2019. The industry saw a 1% increase in transaction volume in December 2020 (212 transaction) compared to the same period in 2019 (210 transactions). Strategic buyers drove nearly 91% of transactions between March 22 – December 31 (1,375 transactions). This is nearly identical to same period in 2019 where over 90% (1,598 transactions) of M&A activity were completed by strategic buyers. Transaction volume comprised of targets primarily engaged in the Application Software subsector of the IT & Telecom industry accounted for over 40% (624 transactions) of all transaction volume between March 22 – December 31, 2020 nearly identical percentage to the nearly 40% (728 transactions) in the same period of 2019.
Google-Facebook Digital Advertising Deal and Price-Fixing Lawsuit
Lawmakers are taking legal action against digital advertising giants Google and Facebook for a business agreement they signed back in 2018 that allegedly was an illegal price-fixing deal. Lawmakers say that Google gave Facebook special terms and access to its ad server, which is not available to other companies, thereby harming the competition. Both Google and Facebook have disputed the claims, of course, stating that they misrepresent the agreement and that these partnerships are common within the industry.1
China’s Antitrust Enforcement on Big Tech
Beijing is zeroing in on billionaire Jack Ma’s technological and financial empire in an effort to strengthen oversight of the increasingly influential Chinese tech industry and is pressuring Ma to authorize the release of collected consumer credit data. China’s financial regulators laid out a restructuring plan that would require Ma’s fintech giant Ant Group to return as an online payment provider while cutting its investment and loan businesses. President Xi Jinping even personally called off Ant’s planned IPO due to Ma’s criticism of Jinping’s risk-control initiative. State officials are trying to maintain the balance of keeping big business in check without scaring away the innovative spirit that has helped China’s technological rise. There is a similar increase in anti-monopoly enforcement for tech companies happening in the United States.2 3
Intel Called to Explore Strategic Alternatives
Third Point LLC, an actively managed hedge fund, is calling for strategic changes from Intel Corp. due to the product delays and loss of rankings the chip company incurred this year. Intel has said it would consider outsourcing the manufacturing of some its most advanced chips, because without important changes at the company, American tech companies will be forced to rely on East Asia’s semiconductors. The push for strategic changes also comes as other tech companies such as Google and Microsoft are creating processors and chips for their own product lines.4 5
Cisco Systems Ends Smart City Push
Cisco Systems, Inc., is no longer pursuing its “Smart City” effort, the latest example of another tech company struggling to enter a new market. This effort, built mainly around the company’s “Cisco Kinetic for Cities” software service, was an initiative for CEO Chuck Robbins, who was trying to transform the company from a hardware tech giant and break into the software services market. COVID-19 also played a significant role in the shutdown of the Smart City effort and any infrastructure projects, as the pandemic has hit localities’ budgets hard.6
New FAA Rules for Commercial Drone Use
The Federal Aviation Administration (FAA) projects that nearly one million commercial drones will be registered in the United States by 2024. As a result, the FAA has established broad safety standards regarding commercial-use drones, intending to promote many previously restricted applications. Some of the new rules will go into effect in two months, but others will take years to implement. However, according to some industry officials, the short-term rules will hinder the development of low-altitude traffic control for drone operations. The new rules also contradict international efforts to develop web-based, cross-border networks.7
Big Tech Taxes Across Borders
At issue is that digital offerings from tech companies can be sold across borders and leave little taxable profits where they are consumed. Proponents say tech companies should pay more taxes in the countries where users are located, but big U.S. tech companies believe the solutions presented thus far are too targeted toward U.S.-based companies. U.S. tech giants say they will support talks led by the Organization for Economic Cooperation and Development (OECD) on a coordinated reallocation of tax revenue. Support for a proposed global minimum tax level for corporations seems to be the path of least resistance; however, many European countries say this will not satisfy their demands and so they are threatening to withdraw from the OECD.8
Charges Against Zoom Executive Warn Tech Companies Operating in China
Federal prosecutors brought criminal charges against an executive at Zoom, accusing him of engaging in a conspiracy to disrupt and censor video meetings commemorating the Tiananmen Square massacre in coordination with Chinese officials. These charges are a reprimand to China for its requirements on tech companies to monitor user activity in order to censor politically sensitive topics. The charges against the executive put Zoom’s security into question, as the U.S. economy has relied heavily on the company’s software platform throughout the pandemic. The case was brought by the U.S. Attorney’s Office in Brooklyn, which has been active in bringing cases that have angered the Chinese government, and sets a precedent: tech companies operating in China that put Chinese censorship above free speech principles will be prosecuted.9
Microsoft’s Lesson for Google’s Antitrust Case
Google’s antitrust case bears similarities to Microsoft’s antitrust case from the early 2000s. Microsoft’s case focused on commercial and market power in contrast to the big tech antitrust cases that were pertaining more so to misinformation, the ability to shape public opinion, and data hoarding. Google and other tech companies were able to thrive due to restrictions put on Microsoft as a result of its antitrust case. However, the unprecedented network effects and lock-ins of today’s tech powers render it reasonable to question whether government intervention is needed to once again level the playing field. As technology becomes increasingly more influential, repressing monopolies that are established through improper conduct is necessary to ensure a fair market.10
5G and IoT Impacts on Telecom
5G technology is set to significantly impact telecom- and other Internet of Things (IoT)–powered industries because of its low latency and massive capacity. According to IDC Technologies, 5G’s broad enablement of IoT use will drive 70% of G2000 companies to have spent $1.2 billion on connectivity management solutions by the end of 2021. Thanks to 5G, telecom companies can promote the development of IoT services across all major industries, relying on IoT sensors for data collection, asset tracking, service delivery, and expanding the IoT infrastructure. The connecting of massive data that will come with IoT will create more employment growth and further expansion in the industry.11
Largest Transactions Closed
- GCI Liberty, Inc.
- Liberty Broadband Corporation
- Epicor Software Corporation
- Clayton, Dubilier & Rice, LLC
- InSite Wireless Group, LLC
- American Tower Investments LLC
- Segment.io, Inc.
- Twilio, Inc.
- Postmates, Inc.
- Uber Technologies, Inc.
- Beach Holding Corporation
- Leo Cable, LP
- Planview, Inc.
- TA Associates Management, L.P.; TPG Captial, L.P.
- Open Systems International, Inc.
- Emerson Electric Co.
- Workfront, Inc.
- Adobe, Inc.
- Llamasoft, Inc.
- Coupa Software Incorporated
This report represents transaction activity as mergers & acquisitions, consolidations, restructurings and spin-offs. Targets are defined as U.S. Based companies with either foreign or U.S. based buyers. Transaction information provided is based on closed dates only.
EBIT - Earnings Before Interest and Taxes