Industry Trend Analysis - Digital Transformation Behind Tech Deals - MAR 2018

BMI View: The threat of digital disruptors is the key reason for recent deals in the tech and media spaces. Legacy companies want to make sure they can still compete with these new players, while they are also looking to add more capabilities in order to enter new markets.

2017 ended with three major deals in the tech and media space, involving global companies such as Disney, 21st Century Fox, Thales and Apple ( see table). One common theme behind these deals is digital transformation, as these traditional companies are looking to provide greater competition to the disruptors which have entered their markets. Traditional companies are also looking to enter new markets, using acquisitions to gain scale and new expertise.

December 2017 Deals
Acquirer Acquiree Price
Source: BMI
Disney Fox USD52.4bn
Thales Gemalto EUR4.8bn (USD5.4bn)
Apple Shazam USD400mn (reported)

The biggest deal involved Disney's acquisition of Fox for USD52.4bn (Fox will spin off some of its current assets, which will still be owned by Rupert Murdoch). The deal will make Disney a dominant owner of content worldwide, as well as putting some major US television channels, especially the ones broadcasting sports, under its ownership. The deal will also make Disney the majority shareholder in Hulu, with a 60% stake. Coming soon after Disney failed to renew its deal with Netflix, it is clear that the streaming giant, as well as Amazon, are the clear targets of the deal. Disney wants to develop its own streaming services, and it knows one core prerequisite for success is content. The addition of Fox's catalogue makes it a major player in that space. There will be high regulatory scrutiny on the deal, especially in the US and in Europe. It may also impact Fox's own deal for Sky, and the company's position during the next sporting rights auctions in Europe, where Amazon and Facebook are expected to participate.

The Thales/ Gemalto deal came soon after Atos had failed with its own bid for Gemalto. It creates a global leader in digital security, and one based in Europe, which is significant considering the region's lack of major players in the tech space compared to its US and Chinese counterparts. Gemalto had suffered from the softness of the physical SIM cards market, as it moves towards eSIMs, while Thales required new capabilities in the digital and software spaces. One example where the two companies' capabilities fit is with Internet of Things (IoT) cybersecurity, where Gemalto's end-point protection and Thales's cloud and data protection can be combined under one single offer.

The final deal concerns Apple's acquisition of Shazam for a reported USD400mn. The music streaming market is dominated by Apple Music and Spotify. Spotify is about to become public, and Apple is therefore to add more capabilities to its music streaming service, as it faces greater competition. Being able to recognise songs through Shazam will help Apple Music differentiate itself from Spotify, while some its latest Augmented Reality (AR) developments fits with Apple's overall strategy.