Recent examples include Saudi Arabian STC Group acquiring a 9.9% stake in Spain’s Telefonica worth €2.1bn Credit: g0d4ather via Shutterstock.

Overall, M&A activity in the TMT segment has been increasing since 2018, but the trend reversed in 2022 – although the Middle East performed well.

Total global M&A deal value dropped 39% in 2022 to $754bn, compared to $1.1trn in the previous year. Deal volume reached 612 deals in 2022, down 39% from 2021.

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The software and services sector accounted for 58% of the overall TMT M&A deal value. The sector had a total of 292 deals worth $431bn.

The big themes driving the top 100 TMT M&A deals in 2022 were cloud, gaming, and connectivity. The big cloud deals were Broadcom’s acquisition of VMware for $69bn and the acquisition of Citrix by PE (Private Equity) firms Evergreen Coast Capital and Vista Equity Partners for $16.5bn. The most notable gaming deal was the acquisition of Activision Blizzard by Microsoft for $68.7bn. The big connectivity deal was $19bn Orange Espana merger with Masmovil Ibercom. The other big themes driving the TMT M&A market in 2022 were big data, social media, cybersecurity, and ecommerce.

In comparison to Western Europe, M&A activity in the Middle East has been favourable in 2023. External factors influencing this include pricing on oil, high growth for the region, and positive GDP growth rates.

The majority of the inward and outward investment fund activity originates from sovereign wealth funds, such as Saudi Arabia’s state-owned Public Investment Fund (PIF). In addition to investing in sectors like pharmaceuticals and renewables, sovereign wealth fund backed entities continue to drive outward investment in the TMT segment. Recent examples include Saudi Arabian STC Group acquiring a 9.9% stake in Spain’s Telefonica worth €2.1bn ($2.25bn), in a move to become the Spanish telecom giant’s top shareholder. Other examples include PPF GROUP (UAE based telecoms group) e& paying €2.2bn for a controlling stake in Czech PPF Group’s telecom assets in Bulgaria, Hungary, Serbia and Slovakia; and lastly UAE’s e& increased its stake in Vodafone to 14%.  

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Momentum in Middle Eastern backed European telco investments to continue

The European telco segment will continue to experience performance challenges, influenced by a changing eco-system and new emerging players, inflation, and energy costs. Telcos’ strategic goals in driving profit margin, reducing debt, and at the same time making the right infrastructure investments in areas like 5G and broadband, will continue to create hurdles in the short to mid-term.

Subsequently, Middle Eastern fund stability and bringing deep pockets, will be welcomed by board members across European telcos. However, investing and acquiring large stakes in European companies will not be plain sailing as country governments will attempt to protect strategic assets.