The year ahead presents significant growth opportunities for Technology, Media and Telecommunications (TMT) – that’s a key insight from our recent Australian M&A outlook 2024, report.
Despite challenging macroeconomic conditions, the sector has already seen significant deal volume. Q1 of FY24 saw several notable M&As, including the largest software transaction in Australia ($9.1bn acquisition of Altium), and a potential multi-billion-dollar investment in Optus.
Our report found three key areas driving growth and innovation: generative AI, private capital, and digital infrastructure. In this article, we will focus on each and show how companies can capitalise on them to navigate an evolving market.
- Growth through generative AI
Generative AI (GenAI) is stimulating significant growth in TMT — across all industry subsectors globally. Australian investment will focus on using these technologies across a wide variety of sectors.
In fact, our 2024 AI Jobs Barometer survey revealed that the sectors more exposed to AI are experiencing almost five times higher growth in labour productivity, with AI skills carrying up to a 25% wage premium in some markets. The data for Australia showed the need to do more to gain the same advantage. AI demand growth was 36% lower in Australia compared with the global benchmark, and the average AI wage premium was, on average, 8 percentage points lower. There’s room for growth here.
While tech enablement is nothing new, what is unprecedented is the speed with which emerging technology is revolutionising operations and service delivery while also offering new avenues for growth and value. Companies are leveraging tech solutions to reinvent and transform their operating models, enter new markets, increase capabilities, and transform their workforces — paving the way for business model reinvention.
- Strategic deployment of private capital
With a record amount of under-deployed private capital ($37bn) available for investment in Australia, private capital dealmakers are under pressure to realise value. TMT companies need to strategically position themselves to attract funding. Understanding the investment priorities and expectations of private capital dealmakers can help companies secure the necessary resources to fuel their growth and transformation.
- Importance of digital infrastructure
The $16bn takeover offer for Australia’s second-largest telecommunications group recently, highlights that telco infrastructure is in demand. Even where dealmakers are not yet ready to invest in GenAI and other emerging technologies, dealmakers recognise technologies require the foundations of digital infrastructure including data centre capacity, fibre connectivity, graphical processing units (GPUs), networking platforms/infrastructure and more.
Three ways for TMT dealmakers to capitalise on opportunities and drive success in 2024:
- Opportunity: Profitable growth
Over the last 3-5 years, there’s been an elevated focus on revenue growth, primarily due to significant premiums provided to public and private companies demonstrating accelerated levels of growth. The inflationary pressures over the last 12-24 months and the subsequent impact on interest rates have contributed to material declines in Technology valuations and a more challenging capital-raising environment. TMT companies have been focused on cost reduction and core business models as they prioritise more profitable growth.
- Opportunity: Public-to-private
Pent-up demand and a trend away from listed markets have created opportunities for public-to-private transactions. This is especially the case in the technology sector, and particularly among private equity, where savvy investors are looking to acquire high-quality, lower-value public companies with strong earnings potential, and take them private.
- Opportunity: Transact to transform
Strategic M&A continues to dominate TMT dealmaking as top-performing organisations reinvent their business models, using transactions to accelerate transformation and value creation. For instance, 67% of global TMT corporate leaders plan to use transactions to accelerate technology adoption and tech-enabled processes (PwC UK’s Value Creation Transformation Survey).
Learn more: Explore PwC’s Australian M&A Outlook 2024 and subscribe to other industry insights.
