Technology, Media and Telecommunication Cash Management Outlook: Diversification and Change
By Sacha Deal, Global Sector Head – Technology, Media & Telecommunication, Global Liquidity and Cash Management, HSBC
If 2016’s high M&A activity levels are any indicator, technology, media and telecommunication (TMT) treasuries will be also having a busy 2017. A variety of other factors are also likely to play a part in strategic decision-making during the year, but on the bright side, several of these have positive implications for treasury. As Sacha Deal, Global Sector Head – Technology, Media & Telecommunication, Global Liquidity and Cash Management at HSBC explains, these range from potential operational efficiency gains and cost savings to longer-term treasury transformations that leverage evolving transaction banking solutions to help future proof the business.
In 2016, much of the focus of TMT treasuries was on integrating newly acquired businesses, or spinning out of operations post de-merger. A key part of these activities was the streamlining of processes to achieve cost efficiencies. Although TMT deal activity in 2016 gives an indication of the fundamental trends we are likely to see through 2017, there will probably be a wider range of drivers.
These can be broadly classified as industry-specific, geopolitical, regulatory, payment industry related or technological, with some inter-dependency and overlap among them. From a timing perspective, these drivers will have a range of time horizons. Some will have an impact straight away, whilst others (largely relating to regulation) will take effect in late 2017 or beyond. Nevertheless, while their influence may not be immediate, these future drivers need to be considered now and the necessary measures and controls to mitigate their potential impact need to be part of today’s strategic treasury perspective.
Industry specific factors: convergence, capex and margins
Q4 2016 was a very strong quarter for TMT M&A deal activity and it looks likely that this activity will be sustained in 2017. While a considerable portion of this has been within the individual technology, media and telecommunications sub-sectors, an important contributor to deal volumes has been convergence across those sub-sectors, plus acquisitions/partnerships completely outside the TMT sector. This has taken various forms, such as mobile phone operators acquiring media assets for video content to stream over their networks.
Elsewhere, there has been diversification into other sectors such as automotive, with initiatives such as ‘connected cars’ that depend upon collaboration among technology companies, mobile phone operators and auto manufacturers, plus the sharing of their associated technologies.
This extension of TMT M&A activity into other sectors and sub-sectors poses a number of additional challenges for corporate treasuries. While a telecoms treasury may have some insight into how another telecoms treasury and its financial processes probably operate, this is less likely to hold true if their company takes over an auto component manufacturer or media company. This is where being able to depend upon an experienced transaction bank can ease matters considerably when it comes to M&A planning and integration.
Capex and margins
Many TMT companies have to make substantial capital expenditure to remain competitive. For technology companies, it may be R&D spending, while for mobile companies it may be for frequency spectrum purchases. The figures involved can be considerable: for instance, the UK 4G spectrum auction in 2013 required a total investment of GBP2.3bn by five mobile operators, with the largest individual investment being GBP800m. The forthcoming 5G spectrum auction will probably require a further substantial investment: Ofcom has announced a reserve price in the 2.3GHz band of GBP10m per 10 MHz lot and a total reserve price of GBP70m for the entire 190MHz of spectrum to be auctioned.
Elsewhere, regulation is exerting something of a two-way pull. New EU legislation regarding limitations on roaming charges outside a subscriber’s own country will erode margins for mobile operators. On the upside, if proposed changes to net neutrality in the US take effect, mobile, cable and broadband providers may have an opportunity to increase margins.