Technology, Media, and Telecommunications (TMT) Quarterly Update Q2 2020 Deloitte Corporate Finance LLC www.investmentbanking.deloitte.com TMT trends In this update • TMT trends Rise of digital venues1,2 Cloud computing4, 5 • Economic outlook With the halt of most live Over the past few months, • Industry analysis entertainment, many content providers COVID-19 and its disruptive effects are beginning to alter distribution have stressed the value of cloud • Select M&A transactions strategy. Several musicians have computing in the modern business, • Appendix teamed with digital platforms to host small and large alike. Scalability, live at-home concerts, with a number efficiency, versatility, and remote Who we are of performances drawing millions of access have all been crucial lifelines for viewers. Movie studios, as well, have many companies. 59% of enterprises Deloitte Corporate Finance LLC is a found success skipping theatres with believe that cloud usage in the coming leading global middle market M&A Premium Video On Demand (PVOD). months will surpass pre-pandemic adviser. Our professionals have Movie studios earn a higher planned levels. percentage of profits from PVOD extensive knowledge in the TMT relative to traditional box office space and use their experience to releases. help clients enhance value. IT and network services3 Creative uses of IoT6 COVID-19 has disrupted With a heightened focus on Contacts traditional workflow across global slowing the spread of business and academic sectors. IT and COVID-19, many organizations have Kevan Flanigan network service providers have needed turned to IoT to facilitate contact-less [email protected] to meet increased demand for interactions. Major players in the +1 (213) 688-6560 specialized software, communication payment solutions arena have taken equipment, cloud infrastructure, and steps to tokenize users’ payment cards Byron Nelson end-to-end system security. and connect them to IoT devices to [email protected] Prospecting permanent changes to the facilitate frictionless payments, such as +1 (469) 417-2462 work environment, IT departments will cars initiating payments at gas stations likely play a more significant role in or take-out restaurants. Another Michael Hakim business continuity planning and creative use of IoT is in smart buildings [email protected] maintenance. to decrease the spread of germs in +1 (213) 593-4545 high-traffic areas. TMT M&A trends COVID-19 impact on TMT M&A • In the second quarter of 2020, global TMT M&A deal • The TMT sector has demonstrated enviable resilience count reached 663. Of these deals, 213 transactions through the pandemic, with valuations remaining robust occurred in the United States and Canada, 231 occurred and discount opportunities seeming few and far between. in Europe, and 175 occurred in the Asia Pacific region. Of Global TMT M&A deal value, however, contracted to the remaining deals, 26 occurred in Africa and the $97.4 billion in Q2 2020, down from $129.7 billion in Q1 Middle East, and 18 occurred in Latin America and 2020, as buyers remain in triage mode, trying to the Caribbean.7 determine the best way to proceed in the wake of a changing global economic outlook caused by COVID-19.10 • 2020 has been a prolific year for data center M&A, with deal value in the first four months reaching $14.7 billion, • In the first half of 2020, nearly 20.0% of all U.S. private surpassing activity from the whole of 2019.8 Internet and equity deals, representing more than 30% of U.S. private digital media has seen a flurry of consolidation activity as equity deal value, took place in the technology landscape well, with $15.3 billion in M&A activity through Q1 2020.9 which is on track for ten-year highs in both metrics.11 • The competition for TMT assets is expected to remain fierce as public strategics continue to retain high levels of liquidity and financial sponsors sit on a record high ~$1.5 trillion in undeployed capital at the end of Q2 2020.12 Copyright © 2020 Deloitte Development LLC. 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Quarterly update | Q2 2020 | TMT 2 Macroeconomic outlook US gross domestic product1,2 US treasury yield curve (nominal vs. real)3 $25.0 15.0% 2.5% 2.0% $20.0 10.0% 1.5% YoY Percent Change Percent YoY $15.0 5.0% 1.0% 0.5% $10.0 0.0% 0.0% Interest Rate Interest $ in Trillions $ in -0.5% $5.0 (5.0%) -1.0% $0.0 (10.0%) -1.5% GDP ($ in Trillions) YoY % Growth (Adj. for Inflation) Real Yield (%) Nominal Yield (%) ISM non-manufacturing index US unemployment rate (% unemployed)4 and consumer confidence index5 10.0% 2,200 64.0 145.0 2,000 9.0% (Thousands) Claims Jobless 60.0 130.0 1,800 Confidence Consumer 8.0% 1,600 56.0 115.0 1,400 7.0% 52.0 100.0 1,200 Manufacturing - 6.0% 1,000 48.0 85.0 % Unemployed 5.0% 800 44.0 70.0 600 Non ISM 4.0% 40.0 55.0 400 3.0% 200 36.0 40.0 Initial Jobless Claims Unemployment Rate (%) ISM Non-Manufacturing Consumer Confidence A growing appetite for technology investments within private equity and growth equity The recession-resistant nature of many technology investments, including e-commerce growth and infrastructure supporting cloud or hybrid cloud migrations, continue to drive investor interest in technology investments. US private equity deal value by sector6 North America and Europe growth equity deal value by sector7 100% 100% 90% B2B 90% B2B 80% 80% B2C B2C 70% 70% Energy 60% Energy 60% 50% Financial Financial 50% 40% Services Services 40% Healthcare 30% 36.9% Healthcare 30% 20% 10.1% Technology 11.6% 15.2% 20.1% Technology 22.3% 31.8% 10% 11.9% 13.4% 16.0% 15.2% 20% 8.0% 9.8% 28.7% 16.7% 11.3% 12.9% 13.4% 15.8% 0% 10% 12.4% 14.6% 19.4% 0% † YTD as of June 30, 2020. †† YTD as of April 29, 2020. Copyright © 2020 Deloitte Development LLC. All rights reserved. Quarterly update | Q2 2020 | TMT 3 TMT sector breakdown and trading statistics1 LTM NTM Sector Number of Percent of Median Median LTM Median Median EV/ EV/ EV/ EV/ Companies 52 Week Revenue EBITDA ($M) EBITDA Enterprise Revenue EBITDA Revenue EBITDA High CAGR (3 Yr) Margin Value ($M) Application 20 93.2% 21.1% $729 22.8% $60,334 1.8 x 33.3 x 8.4 x 21.6 x software/SaaS Internet and digital 18 93.0 25.6 330 25.8 33,105 6.5 23.4 5.4 15.2 media IT services 9 84.3 7.2 3,340 20.1 29,833 2.0 10.0 2.0 10.6 Hardware 17 84.1 2.1 4,827 24.7 38,352 2.5 9.9 2.5 8.6 Traditional media 18 67.8 4.2 1,427 15.8 14,063 1.3 8.6 1.5 9.8 Telecommunications 20 76.1 1.1 13, 667 28.9 82,890 2.0 6.4 2.0 6.4 Automotive 7 78.7 0.2 701 10.3 7,583 1.8 10.8 1.4 12.0 technology TMT Index 109 82.6% 22.9% $2,230 22.9% $34,170 3.0 x 10.6 x 2.7 x 10.6 x Public comparable stock market performance since January 20172,3 S&P 500 Index 37.31% NASDAQ Composite Index 85.28% Technology Index 128.86% Media Index (5.39%) Telecommunications Index (11.07%) 140.0% 120.0% 100.0% 80.0% 60.0% 40.0% 20.0% 0.0% -20.0% -40.0% Copyright © 2020 Deloitte Development LLC. 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Quarterly update | Q2 2020 | TMT 4 COVID-19 impact on TMT trading multiples LTM EV/EBITDA(1,2,3) 35.0x 30.0x Trading multiples drop sharply across the 25.0x board. 20.0x 15.0x 10.0x 5.0x 0.0x Application Software/SaaS Internet & Digital Media IT Services Shaded areas indicate US recessions Telecommunications Hardware Traditional Media Automotive Technology S&P 500 Median EV/EBITDA(4) Application Internet & Traditional Telecommunicat Automotive IT Services Hardware S&P 500 Software/SaaS Digital Media Media ions Technology Oct-07 14.8x 15.6x 14.4x 9.5x 9.2x 7.7x 16.5x 11.3x Nov-08 7.9x 7.8x 6.2x 4.1x 5.3x 4.9x 2.7x 6.0x Change (6.9x) (7.8x) (8.2x) (5.3x) (3.9x) (2.7x) (13.8x) (5.3x) Jan-20 20.1x 18.5x 10.9x 10.4x 10.1x 7.2x 11.7x 14.4x Jun-20 20.7x 16.2x 9.1x 9.7x 6.7x 6.6x 9.9x 14.1x Change .6x (2.3x) (1.8x) (0.7x) (3.4x) (0.6x) (1.8x) (0.3x) Average EV/EBITDA(4) Application Internet & Traditional Telecommunicat Automotive IT Services Hardware S&P 500 Software/SaaS Digital Media Media ions Technology Oct-07 15.7x 15.6x 15.4x 10.4x 9.7x 9.1x 16.5x 11.3x Nov-08 9.6x 9.6x 5.4x 4.7x 6.1x 4.7x 2.7x 6.0x Change (6.1x) (6.0x) (10.0x) (5.7x) (3.6x) (4.4x) (13.8x) (5.3x) Jan-20 19.3x 18.9x 13.0x 10.7x 11.9x 7.6x 9.8x 14.4x Jun-20 19.8x 15.7x 11.1x 9.8x 8.7x 6.4x 12.0x 14.1x Change .5x (3.2x) (1.9x) (.9x) (3.2x) (1.2x) 2.2x (0.3x) Copyright © 2020 Deloitte Development LLC.