German M&A Trends in Technology, Media and Telecommunications

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Gerald Schustereder
Partner Deals, Technology, Media and Telecommunications (TMT) at PwC Germany
Tel: +49 89 5790-5541
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Technology

Software

Within technology, software makes up for over 2/3rds of the deal volume in H1 2023. In this category, software publishers are dominant, with many small and medium-sized deals but also more sizable ones, such as the buyout of Software AG by Silverlake or the acquisition of GK Software by Fujitsu. Due to the importance of software to the economy and its attractiveness to investors, we expect this dominance to continue. Financial investors are especially interested in the sector, accounting for about 80% of the deals.

IT services

M&A in IT services is also quite dynamic, including custom software development, IT infrastructure outsourcing, and outsourcing complete business processes. Industry trends such as standardisation of infrastructure and application services enable scale advantages and will consequently further drive industry consolidation, especially for outsourcing providers.

Semiconductors

There are few M&A transactions on German semiconductor assets, such as the broadly discussed Elmos Semiconductor sale. The largest German player, Infineon, successfully acquired GaN Systems, a Canadian gallium nitride high-power transistor manufacturer. Furthermore, it sold its HiRel DC-DC converter business, including its hybrid and custom board-based power products, to Micross Components. Going forward, further smaller acquisitions are on the agenda.

Artificial intelligence and metaverse

AI and metaverse deals on German assets are not significant in terms of numbers yet but are expected to increase. German firms have been participating in deals as buyers; for instance, the enterprise software firm SAP placed three investments in generative AI market leaders Aleph Alpha (Germany), Anthropic (US) and Cohere (US/CA).

Media and Entertainment

On a global level, the media and entertainment industries are going through large shifts, e.g., streaming players coming from a pure growth phase to a profit prioritisation and possibly consolidation phase or video gaming and online gambling gaining an increasingly broad customer base. At the same time, individuals can be targeted very precisely now with offers and advertisements. The German industry structure is more focused on traditional media assets, however.

Much attention in the press has been gained from the portfolio optimisation and restructuring of print publication firms. That includes the announcement of Bertelsmann’s Gruner+Jahr to reduce their portfolio by ~80% in the number of publications. Further, Holtzbrinck sold Springer Fachmedien München GmbH, a Munich-based book publisher, to Unigestion. In the meantime, the market-leading rainbow press publication BILD announced a significant internal restructuring, reducing the number of localised editions and replacing a substantial portion of staff with AI technology. Presumably, traditional print publishing will continue to contract due to competition in consumers’ attention by social media.

Furthermore, ProSiebenSat1 Media SE has seen a continued stake increase by the Italian MFE-MediaForEurope NV, which now holds 28.87%, and Czech Republic-based PPF Group NV, which holds 15%. Several smaller transactions in the Media industry include ad agencies and internet portals, printing services, and movie (post)-production firms.

With many live events and concerts being booked out and trade fairs and cinemas getting more populated again, the live events industry could gain significant ground and recover from the complete halt during the coronavirus pandemic.

Telecom

After the sale of Deutsche Telekom’s cellular towers and Vodafone’s Vantage Towers divestment in 2022 to financial investors, it is unlikely that more large cellular tower deals will be coming up anytime soon in Germany. Also, as a more regional or even global trend, we have observed that cellular tower firms seem to switch gears away from acquisitions and towards reducing debt and increasing profitability. That switch is certainly also due to the rising cost of capital.

Nevertheless, we expect some deal activity in the field of broadband networks in Germany. After a several-year period of heavy investments from first global financial investors and then local strategics, the highly profitable fibre extension opportunities are getting rarer, with the cost of labour and material rising and the cost of capital rising. However, as there are many subscale players in the market and the operational efficiency of various players is diverging significantly, there is financial pressure for subscale players on the one hand and value creation potential for buyers on the other hand. That combination makes the market attractive for consolidation plays. Visible signs of the lack of financial viability have been observed when several assets filed for bankruptcy earlier this year. This includes HelloFiber, the JV of InfraVia Capital Partners and Liberty Global, KKR- / John Laing-backed Glasfaser Direkt, and the local utilities owned HeLi NET Telecommunications.

Regarding telcos as buyers, we expect the local and regional trends to follow the international ones, i.e. telecom operators will continue attempting to pivot towards higher-growth revenue streams through capability-driven bolt-on acquisitions. While the traditional focus for side businesses was more on media, this became an increasingly difficult and low-margin space, with international streaming players gaining market share rapidly. Therefore, IT services fields such as cloud, data analytics, and cybersecurity are increasingly popular among telcos and remain strong candidates for M&A activity. Globally, some telcos are venturing into even less related fields, such as financial services, e-commerce, or healthcare.