With a Trump administration potentially opening the door for a flurry of M&A activity, new research from Baker McKenzie claims this is only going to be a slice of the bigger pie.

M&A activity in the telecommunications and technology sector is expected to rise to $415 billion in 2018, as the emergence of disruptive cloud, mobile, social and Big Data analytics technologies begin to carve their way into mainstream. 2016 continued the rising trend of M&A activity, however 2017 is looking relatively flat, only for 2018 to be the biggest year of spending since 2000.

“We are clearly still in volatile times but deal-making is there to be done,” said Paul Rawlinson, Global Chair of Baker McKenzie. “Strong corporate balance sheets, cheap finance and moderate growth across markets and key sectors all point to an improving M&A run-rate later in 2017, after a cautious first quarter, and a significant uptick in 2018. The caveat is we need a benign Trump on trade and a soft-ish Brexit. Will we get that? Let’s see.”

Activity in the telco arena looked to have taken a significant slump in 2016, though bear in mind the merger of Altice SA with Altice NV for an estimated $145 billion in 2015 may have exaggerated the figures. The team at Baker McKenzie are confident the industry is in a strong position moving forward, though it is dwarfed by activity in the ever more competitive technology segment.

“Technology is an environment with innovation at its heart. Innovation drives M&A activity as companies look for the skills and intellectual property to grow, and be at the forefront of innovation,” said Anne-Marie Allgrove, Global Chair of the Baker McKenzie Global TMT Industry Group.

“We have seen innovation in the cloud, wireless and analytics sectors over the last few years and now we are really starting to see the emergence on a competitive scale of a new wave of innovative technologies, such as artificial intelligence, robotics and the Internet of Things.

“With all the signs pointing to a market that will grow rapidly in 2018, the cutting edge and exponential growth nature of technology means that the sector is currently on a high, enjoying a period of substantial activity that is resulting in a major uptick in the number of well-structured deals being completed, with the sector concurrently exhibiting no obvious signs of being curtailed.”

The success of these deals still remains to be seen, though the transactions can generally be split into two groups. Firstly, you have the disruptors., companies like Facebook or Salesforce, who have capitalized on the opportunities created by the digital economy to growth on a healthy curve. These are the businesses which are looking to such deals to sustain growth, and take advantage of strong brand credibility to venture into new markets and new revenue streams.

Secondly, you have the chasers. Those companies who got used to healthy profits margins in the 90s and early 00s, but got left behind during the digital transformation. Think along the lines of BT, IBM or Oracle. M&A activity here is to regain lost fortunes. It can be expensive due to the fact they are playing catch-up, not having the time to develop skills and business models organically, and it can be dangerous. An organization only needs one bet to go wrong and it could be disastrous.

The idea of diversification is chasing new money. Whether that is to continue growth, or claw back lost fortunes, is irrelevant. The status quo has been disrupted in recent years due to the digital economy, and there is potential for it to be disrupted again.

In a decade, it is possible the most successful technology company in the world will be one we’ve never heard of today. Who had heard of Facebook, AWS, Deepmind or Salesforce in 2000? Some did not exist and some were babies; it’s doesn’t matter, they redefined the industry. Buy one of these babies in the early days and it could be a gold-mine. Then again, it could be another Autonomy

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