The Digital Evolution and the Role of the TMT Sector The Digital Evolution and the Role of the TMT Sector

2021 Weather, Climate and Catastrophe Insight

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Driving the Deal The Digital Evolution and the Role of the TMT Sector

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2021 saw an accelerated rate of merger and acquisition (M&A) activity in the technology, media and telecommunications (TMT) sector, with approximately two out of five private equity transactions in the first half of the year being TMT related.¹

1. Unquote, 2021 2. Aon’s Risk in Review for 2020-2021 3. White & Case 2021

Deals are increasing in complexity. What would have been typically unfamiliar to dealmakers a few years ago – such as intellectual property (IP), environmental, social and governance (ESG) and cyber – are now driving value creation as well as making the deal structure more complex and demanding. In a recent survey, 96 percent of dealmakers and M&A experts said they were dedicating more resources to the due diligence process when considering transactions.²

Natural Resource

Food, Agribusiness and Beverage

Transportation and Logistics

North America

(non U.S.)

Europe

Middle East

Africa

Asia

Oceania

Sarah LaBarre

If you don’t have the capability to offer increased cash and equity, there are still a lot of powerful tools available to managers and HR leaders. Aon’s recent digital report on future skills and talent resilience in the life sciences sector provides a comparative view of organizational approaches to total rewards from 2020 to 2021, highlighting the increased focus on employee-centered strategies and wellbeing. More specifically, many life sciences companies are offering additional paid time off, including targeted recharge days, summer shutdowns and extra days around holidays. While there is a strong emphasis on flexibility, finding a balance is key. Companies that can offer work-from-home options should also encourage in-person meetings, lunches and other gatherings to foster connection and engagement. This directly improves company culture — a core component of retention. Career advancement and accelerated promotions are extremely important to all employees across generations, particularly when it comes to providing a pathway for development. “Almost immediately after being hired, employees are asking what career growth options they have, and it’s important to have an answer. Every company should take the time to determine real definitions around career opportunities for employees,” says Sarah LaBarre, an associate partner focused on rewards solutions in the life sciences sector for Aon’s human capital practice. Understanding job levels and families, as well as where any overlaps lie is essential. Companies should view career frameworks holistically, connecting job architecture, rewards, salary structures and incentives to create career paths that are no longer exclusively linear. If people are given new opportunities across different job families within the organization, there will be less reason for them to leave.

Almost immediately after being hired, employees are asking what career growth options they have, and it’s important to have an answer. Every company should take the time to determine real definitions around career opportunities for employees.

“

Transportation and Logistics

• While the pandemic played a part in the rising costs in the Food, Agribusiness and Beverage (FAB) sector, the reasons for the increases go much deeper. Increased fertilizer costs, adverse weather, labor shortages, fuel costs, supply chain issues in addition to cyber attacks have led to dramatic price increases and put pressure on crop yields. These conditions are hampering efforts to get to market in an industry where an efficient end-to-end delivery model is critical. Food inflation, which stood at a modest 2.2 percent in 2021, jumped to 7 percent at the start of 2022, its sharpest rise since 1981. The price of meat, dairy and cereals trended upward from late 2021. Prices for feed grains and wheat, rice and soybeans are all higher. Global production of commodities such as wheat, corn and soybeans have decreased due to a variety of factors including current global political disruptions. Such disruptions are also impacting traditional supply routes. Between April 2020 and December 2021 alone, the price for soybeans increased 52 percent and corn and wheat grew 80 percent, according to the International Monetary Fund. Supply chain issues can certainly be felt across most global industries, however, they are particularly acute in the FAB sector where speed to market is essential and the delivery delay of just one commodity -- when multiple ingredients must come together in the process of creating a single product -- can be devastating for businesses that operate on the thinnest of margins. The pandemic is one reason behind the current supply chain issues – according to Aon’s Operational Resilience in the Food Agribusiness and Beverage Industry report, 42 percent of businesses surveyed experienced supply chain acceleration, however, 40 percent faced raw material supply issues due to the impact of COVID-19. Issues in the FAB industry go beyond the pandemic. Climate disruptions, including drought, flooding and freezes, and also recent global conflict, have put serious stress on traditional global supply routes, and the FAB industry overall. Further, a lack of labor in the fields, processing plants and in the supply chain, together with high turnover, are some of the FAB sector’s biggest obstacles as well. The lack of skilled labor can lead to potential food safety issues, and a deterioration of workplace safety. These issues are compounded by the threat of cyber attacks, which can disrupt production and distribution and cause business interruption issues. Such attacks can destroy operations and supply chains, resulting in significant revenue loss, material costs and reputational damage. Aon reports that nearly eight in 10 FAB leaders surveyed rank cyber ris

Twenty-three individual events in the U.S. exceeded the $1 billion economic loss threshold in 2021.

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Food, Agribusiness and Beverage

Axxxx

Global natural resource prices have risen sharply, from March 2021 to March 2022: Coal (up 275 percent), aluminum (up 56 percent), copper (up 13 percent), nickel (up 163 percent), brent crude oil (up 63 percent), and natural gas (up 97 percent). Metal prices have increased in the past 12 months due to increased demand for base metals and a fall in Chinese steel production. U.S. steel prices rose more than 200 percent in 2021, however, prices have since retreated in 2022. Alongside legacy pandemic-related forces, currency exchange rates, interest rate hikes and political upheaval are increasing the cost of natural resources. In the short term, energy prices remain highly uncertain. Recent international volatility helped push brent crude oil to well over $100 a barrel in March, leading gasoline prices to record highs. Natural gas also rose steeply, averaging $4.69 per million British thermal units. Global renewable energy, meanwhile, continues to grow. Renewables are set to account for nearly 95 percent of the increase in global power capacity through 2026. Monetary conditions have also tightened. The U.S. Federal Reserve has begun increasing rates; the European Central Bank, meanwhile, has committed to maintaining its key interest rates at current levels awaiting progress toward stabilizing inflation at its medium-term target. Less friendly monetary policies in advanced economies will likely pose challenges for central banks and governments in emerging markets with developing economies. Higher returns elsewhere will likely incentivize capital to flow overseas, putting downward pressure on emerging markets and developing economy currencies and raising inflation. Without commensurate tightening, this will likely increase the burden on foreign-currency borrowers, both public and private. Businesses with international exposures, both in property and equipment, are likely to be impacted.

Txxxx.

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Natural Resource

Name Here

The TMT sector was the most active globally in 2021 - in both deal value and volume terms.³

“

The digital revolution continues to gather momentum. Multiple industries are becoming increasingly reliant on technology, driving an uptick in M&A activity across the TMT sector. The appetite from private equity investors is growing at a rapid pace as organizations seek to remain competitive and find new ways to enhance their core capabilities - while seizing opportunities for growth. New and thriving organizations are leading the way on acquisitions as they consider deals a way to build new capabilities, reshape their businesses and maintain or gain market share. Meanwhile, global M&A activity is on the rise, with investments triggered by initial public offerings (IPOs) of special-purpose acquisition companies (SPACs) and venture capital (VC) funding. The current deal appetite reflects the growth potential in an increasingly virtual world. Next-generation innovations have prompted a surge of opportunities, supported by an increase in new investments across the entire digital infrastructure.

M&A is Driving Growth

Technology

M&A Trends: An Industry Focus

As industries continue to recover from the disruption caused by the COVID-19 pandemic, the shift in consumer behavior continues to drive many organizations to reassess their operations. Consumers increasingly rely on online services, and this changing behavior has boosted deal activity, particularly for digital platforms such as online marketplaces and consumer comparison tools. Technology implementation is also accelerating across retail and consumer-focused industries, where digital engagement is crucial throughout the supply chain as well as at “point of sale”. Meanwhile, the fintech-led shake-up of financial services and “med-tech” in healthcare is also gathering momentum. Buyers are looking to accelerate acquisitions around artificial intelligence (AI), cloud transition (applications, connectivity and security) and the internet of things (IoT).

Technology will continue to act as an enabler for growth for many sectors. Technologies such as quantum computing, space exploration and energy storage are moving towards commercialization and are seeing more VC investment, IPO and M&A activity. In pursuing M&A activity, businesses should prepare for increased sovereignty and government scrutiny on data, privacy and cryptocurrency laws in cross-border deals.

Looking Ahead

David Molony TMT Industry Leader david.molony@aon.com

While the pandemic played a part in the rising costs in the Food, Agribusiness and Beverage (FAB) sector, the reasons for the increases go much deeper. Increased fertilizer costs, adverse weather, labor shortages, fuel costs, supply chain issues in addition to cyber attacks have led to dramatic price increases and put pressure on crop yields. These conditions are hampering efforts to get to market in an industry where an efficient end-to-end delivery model is critical. Food inflation, which stood at a modest 2.2 percent in 2021, jumped to 7 percent at the start of 2022,⁷ its sharpest rise since 1981.⁸ The price of meat, dairy and cereals trended upward from late 2021. Prices for feed grains and wheat, rice and soybeans are all higher. Global production of commodities such as wheat, corn and soybeans have decreased due to a variety of factors including current global political disruptions. Such disruptions are also impacting traditional supply routes. Between April 2020 and December 2021 alone, the price for soybeans increased 52 percent and corn and wheat grew 80 percent, according to the International Monetary Fund. Supply chain issues can certainly be felt across most global industries, however, they are particularly acute in the FAB sector where speed to market is essential and the delivery delay of just one commodity -- when multiple ingredients must come together in the process of creating a single product -- can be devastating for businesses that operate on the thinnest of margins. The pandemic is one reason behind the current supply chain issues – according to Aon’s Operational Resilience in the Food Agribusiness and Beverage Industry report, 42 percent of businesses surveyed experienced supply chain acceleration, however, 40 per cent faced raw material supply issues due to the impact of COVID-19. Issues in the FAB industry go beyond the pandemic. Climate disruptions, including drought, flooding and freezes, and also recent global conflict, have put serious stress on traditional global supply routes, and the FAB industry overall. Further, a lack of labor in the fields, processing plants and in the supply chain, together with high turnover, are some of the FAB sector’s biggest obstacles as well. The lack of skilled labor can lead to potential food safety issues, and a deterioration of workplace safety. These issues are compounded by the threat of cyber attacks, which can disrupt production and distribution and cause business interruption issues. Such attacks can destroy operations and supply chains, resulting in significant revenue loss, material costs and reputational damage. Aon reports that nearly eight in 10 FAB leaders surveyed rank cyber risk as a top five corporate threat.⁹

Quote in here. X x X X x x x x

Name Here

“

Global natural resource prices have risen sharply, from March 2021 to March 2022: Coal (up 275 percent), aluminum (up 56 percent), copper (up 13 percent), nickel (up 163 percent), brent crude oil (up 63 percent), and natural gas (up 97 percent).⁴ Metal prices have increased in the past 12 months due to increased demand for base metals and a fall in Chinese steel production. U.S. steel prices rose more than 200 percent in 2021, however, prices have since retreated in 2022. Alongside legacy pandemic-related forces, currency exchange rates, interest rate hikes and political upheaval are increasing the cost of natural resources. In the short term, energy prices remain highly uncertain. Recent international volatility helped push brent crude oil to well over $100 a barrel in March, leading gasoline prices to record highs. Natural gas also rose steeply, averaging $4.69 per million British thermal units. Global renewable energy, meanwhile, continues to grow. Renewables are set to account for nearly 95 percent of the increase in global power capacity through 2026.⁵ Monetary conditions have also tightened. The U.S. Federal Reserve has begun increasing rates; the European Central Bank, meanwhile, has committed to maintaining its key interest rates at current levels awaiting progress toward stabilizing inflation at its medium-term target. Less friendly monetary policies in advanced economies will likely pose challenges for central banks and governments in emerging markets with developing economies. Higher returns elsewhere will likely incentivize capital to flow overseas, putting downward pressure on emerging markets and developing economy currencies and raising inflation. Without commensurate tightening, this will likely increase the burden on foreign-currency borrowers, both public and private.⁶ Businesses with international exposures, both in property and equipment, are likely to be impacted.

Transportation and logistics issues also compound inflation. Interconnected supply chains continue to be hampered by container shortages and lack of dock and truck driver labor. Global shipping container rates rose from less than $2,000 to a peak of nearly $11,000 in late 2021.¹⁰ Shipping costs continue to increase overall – ocean freight costs are up 29 percent and shipping by truck is up 18.3 percent in January 2022 in the U.S. alone.¹¹ As ocean cargo supply chain delays have continued, shippers have increasingly turned to air freight to deliver their goods. However, recent political conflicts have caused a surge in jet fuel costs and shippers have paid the price. Air cargo rates from China to Europe jumped 80 percent to $11.36 a kilogram in early March, according to Freightos, a freight booking platform. Aon classifies complex supply chain risk as one of the six largest risks facing businesses today, along with loss of intellectual property, cyber attacks, damage to reputation, climate change and the COVID-19 pandemic. All are interconnected and evolving fast. Supply chain disruptions due to the pandemic are well-documented and substantial. According to Aon’s COVID-19 Risk Management and Insurance Survey the largest percentage of disruption in the supply chain due to the pandemic was because of a drop in consumer demand (36 percent), which affected hospitality and energy sectors that are heavily led by demand. Increased cyber attacks have also caused broad disruptions in the supply chain. Ransomware attacks are threatening the shipping industry, which relies heavily on the interaction between a number of different digital systems, from ports and cities to individual ships and the companies that own them. Loss of income from this risk in the past 12 months has risen from 21 percent to 35 percent, whereas risk readiness has declined from 70 percent to 63 percent. The results are consistent with those in Aon's COVID-19 survey, in which 36 percent of surveyed companies cited disruption to their supply chains and nearly 20 percent had trouble sourcing materials.

Economists initially felt inflation would be a transitory issue. However, many now believe inflation may be more persistent -- there are too many interconnected variables present to suggest this is a short-term phenomenon. The International Monetary Fund expects ongoing supply chain disruptions and high energy costs to continue to boost inflation, only decreasing in late 2022 as supply demand imbalances wane and monetary policy in major economies responds.¹²

M&A is playing a key role in strengthening capacity and future-proofing capabilities within telecoms, in areas such as fiber roll-out and 5G and SD-WAN-enabled infrastructure. Consolidation of network providers is already following, with fast buildouts of fiber infrastructure by independent players, and bringing one or more of these providers together would offer greater economies of scale.

Telecommunications

Cryptocurrency

Top Emerging M&A Trends Across TMT

1

Disruptive Technologies

2

Artificial Intelligence

3

As a major conduit for change, the TMT sector will enable multiple industries to revolutionize their operations and accelerate innovation. In the next article in this M&A series, we discuss macro trends impacting the TMT sector, and how organizations can navigate these challenges.

Advertising revenues were down during the pandemic's peak, with shows canceled and many cinemas closed during lockdowns. More traditional deal activity has been strong in some growth markets, including gaming and streaming. Access to public markets and private capital are needed to facilitate balance sheet repair and support growth, driving an uptick in deal activity more recently.

Media

Zamani Ngidi TMT Industry Deputy Leader zamani.ngidi2@aon.co.za

Ian McCaw M&A Cyber ian.mccaw@aon.co.uk

Jake Tobin Financial Sponsors Industry Leader jake.tobin@aon.co.uk

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M&A Global Trends

In the next articles in this M&A series, we discuss the global trends impacting M&A activity and how organizations can navigate the risks and the opportunities afforded by M&A in 2022 and beyond.

Access More M&A Insights

M&A Risks & Opportunities

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David Molony TMT Industry Leader david.molony@aon.com

If you would like to discuss any aspects of these insights, or to better understand our capabilities in this area, please do not hesitate to get in contact with our team.

Talk With Us

1. Unquote, 2021 2. Aon’s Risk in Review for 2020-2021 3. White & Case 2021

Looking Ahead

Technology

M&A Trends: An Industry Focus

M&A is Driving Growth

The TMT sector was the most active globally in 2021 - in both deal value and volume terms.³

Name Here

“

Find Out More

Section 3

What Can We Do?

Section 2

Why This Is Important

Section 1

Explore the Report

2021 Weather, Climate and Catastrophe Insight