Surging TMT transactions carry Q2 global M&A to record heights

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Dealmakers hoping for a 2021 rebound in M&A activity have not been disappointed. In Q2 2021, M&A value came to US$1.5 trillion, up 16% compared to Q1 2021 and the highest total of any quarter on Mergermarket record (since 2006).

Volume, on the other hand, dropped by 11% from the previous quarter to a total of 5,311 transactions as valuations for high-growth assets continue to trend upwards. 

Tech and media giants battle for content

The technology, media, and telecom (TMT) sector was the most active globally—in both deal value and volume terms. A total of US$511.2 billion in TMT deals announced in Q2 represented a substantial increase from Q1’s previous record high of US$374.4 billion. TMT volume, meanwhile, came in at 1,389 deals—just under the 1,448 deals the previous quarter.

A string of blockbuster media deals was behind this record value, the largest being Discovery’s US$96.2 billion acquisition of the WarnerMedia business segment from AT&T. The spin-off/merger transaction will create the second-largest media company globally by revenue, following Disney. The deal is part of the growing trend of consolidation among tech and media companies competing for larger streaming giants in the battle for the future of online entertainment.

Just a week after Discovery’s announcement, Amazon announced its proposed acquisition of US film studio Metro-Goldwyn-Mayer for US$8.5 billion. The purchase of MGM’s catalog of over 4,000 films will bolster Amazon’s Prime video streaming offering in the race to offer premium content.

Software firms produce big-ticket deals

The software industry produced some significant deals in the second quarter, notably Microsoft’s US$19.3 billion all-cash purchase of AI-powered speech recognition firm Nuance. The deal is Microsoft’s second largest on record, following its US$26.2 billion takeover of LinkedIn in 2016.

Microsoft is working with Nuance to roll out AI across a range of industries, with a focus on healthcare. “AI is technology’s most important priority, and healthcare is its most urgent application,” Microsoft chief executive Satya Nadella wrote in a tweet announcing the deal.

Another major deal in the software and technology-enabled services space was the merger between Singapore-based Grab Holdings and SPAC Altimeter Growth Corp. The US$34.7 billion deal will allow Grab, which operates a “super app” in Southeast Asia offering ride-hailing, food delivery, financial services, travel booking and online shopping, to list on NASDAQ. 

Market penetration for digital financial services and on-demand mobility in Southeast Asia lags behind that in neighboring China but is growing rapidly—a trend that has helped Grab nab the honor of being the largest SPAC merger to date.

Construction value on the rise

The construction sector posted the largest increase in value of any sector, totaling US$169.6 billion in Q2 2021. This is by far the highest value on record for the sector, overtaking the previous high of US$52.9 billion in Q2 2014. A total of 221 deals in the sector is more than double the 98 transactions in the same quarter the previous year. 

The impressive deal value can be attributed to the fact that the sector was home to the largest transaction of the quarter: the US$111.5 billion merger between two Chinese infrastructure companies, Sichuan Railway Investment Group and Sichuan Transportation Investment Group. Following the deal, the two state owned companies will combine to form Shudao Investment Group.

US leads the way 

The US was the most active country globally in Q2, attracting five of the top ten M&A deals in the quarter. The mega-mergers in the media and software industries helped push Q2 deal value to US$709.2 billion—up almost ten times Q2 2020’s US$77.7 billion and overtaking the previous quarterly high of US$560.3 billion in Q1. The number of announced transactions, meanwhile, came to 1,634 deals, a 14% drop on the previous quarter. 

The US economy is predicted to grow 6.9% in 2021, according to OECD figures. Coupled with the success of the country’s vaccine rollout and a buoyant stock market, this growth will boost confidence in the market. 

Outlook 

There is much for global dealmakers to feel confident about as they look ahead to the second half of the year, despite background concerns regarding variants of COVID-19.

Dealmakers can count on increased activity in sectors that have benefited from the COVID-19 pandemic, along with improved balance sheets, low interest rates and healthy stock markets, all of which will continue to boost activity in H2.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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