The TMT (Technology, Media, and Telecommunications) sector has seen phenomenal growth over the past few years, becoming a hotbed of technological innovation and investment. This sector encompasses diverse companies ranging from hardware giants like IBM to streaming service providers like Netflix. But one trait they all share is the capital-intensive nature of their operations.
In the wake of the pandemic, acquiring substantial capital investment has become crucial for these companies. High R&D costs, infrastructure development expenses, and regulatory capital deployed for legal compliance are some significant expenditure areas for TMT companies that necessitate increased capital investment.
In 2023, the TMT sector witnessed a record number of M&A deals, signifying its growing appeal for capital investment. Although the number of deals dipped a little due to global economic influences, current trends suggest a potential recovery in 2024. Better yet, any concerns about rising interest rates and geopolitical uncertainties seem to be softened by some expected changes in monetary policy. This approach appears friendly to private investors, increasing the likelihood of investment opportunities in the future.
Exhibit 1: TMT deal volumes and values
Source: PwC
One spotlight in the capital raising stage has been Europe, displaying a positive change in invested capital, furthering its appeal for long-term investments.
Exhibit 2: Capital invested and change in capital invested (%) by region, 2020 versus 2023
Source: Invest Europe
As we stride into 2024, several trends will shape the capital-raising landscape of the TMT sector. The software industry will continue to dominate capital attraction, while consolidation efforts in the telecom and streaming sector will give rise to increased deal activities. A surge in private equity involvement is also anticipated, thanks to the trend of profitable companies going private. But with increased scrutiny, especially in Europe, TMT companies must devise innovative strategies to sustain.
Social media has emerged as a game-changer in the capital-raising arena. Studies by the Wharton School have highlighted the significant role of social media platforms in reducing capital-raising inequalities. With technology startups leveraging their social media presence to impact the investment decisions of private investors, this trend is promising and is expected to pick up the pace in 2024.
The next up-and-coming avenue is crowdfunding. With its exponential growth over the past five years, it offers TMT companies an efficient way to raise capital, particularly those with limited access to public markets. Given the present trends, the global crowdfunding market is expected to grow by 16% in 2024 to reach $17.9 billion.
Amid challenges, the TMT sector has numerous opportunities that await. Innovations, public-to-private transactions, growth of subscription-based business models, impact investing, and the rapid expansion of digital securities present promising avenues for capital raising. Additionally, emerging markets such as Cyprus, fast recovering from the pandemic and with attractive investment conditions, offer fresh opportunities for TMT companies.
In conclusion, with several macroeconomic tailwinds at play in 2024, the global TMT sector is poised for a strong year. The relentless thirst for innovation, coupled with the rise of AI and 5G technology, will propel investors towards opportunities in the TMT sector, fuelling the ongoing technological revolution.