Welcome to TMT Banking and Here's What to Expect
When we first did our summer analyst interviews four years ago, it seemed like the popularity of TMT must be at its peak. It was hard to imagine that there could be much more deal activity than there already was or that valuations could stretch any further.
When we got into banking breathless articles were being written about sky-high startup valuations and the absurd business models of companies like WeWork and MoviePass that seemed to defy any kind of norms.
In fact, in our summer analyst training class there were a set of contrarians who thought the best coverage groups to join were natural resources, industrials, and healthcare. Because those kinds of companies would still be actively doing M&A when markets finally came to their senses and stopped rewarding TMT companies (primarily, tech companies) with these wild valuations that allowed for such outsized deal activity.
But here we are, four years later, and the trends that we observed then have only been exacerbated.
It's safe to say that if you were to tell someone even just a few years ago that L/S hedge funds would have 15% of their total exposure wrapped up in companies with EV/Sales greater than 20x people would think you were absolutely crazy.
But take a look at this chart, courtesy of a recent Goldman Sachs research note:
Note: Of course, not all the companies that have EV/Sales in excess of 20x are within TMT coverage. Some will be in healthcare, etc. but most will be in TMT.
Some argue that markets have become fundamentally distorted over the past few years and that a return to fundamentals will see a decline in tech valuations and, thus, tech M&A.
That may very well be true on the valuations side. But what is unmistakable is that TMT will almost certainly continue to have the most M&A deal flow (and, thus, the most M&A deal fees) moving forward.
Because what drives M&A activity at the end of the day is not sky-high valuations - although those help - but rather industry volatility and upheaval.
As industries become upended due to technological shifts, large incumbents must make decisions on how to pivot their business. For many companies, they look toward acquiring tech companies to add talent and/or additional revenue streams.
Currently, even just within TMT itself, we are seeing that play out. For example, you have AT&T acquiring Time Warner in 2018 to try to - in a somewhat fumbling and bumbling way - try to create some kind of modern streaming service.
Then, in Q2 2021, you have these new media assets acquired by AT&T (re-named TimeWarner) being spun-out and merged with Discovery after AT&T realized that their current strategy was futile.
One of the primary drivers of deal activity over the past five years has been large incumbents in other industries shelling out tens of billions - at sky-high valuations - for certain kinds of tech, media, and even telecom assets to try to stave off being disrupted.
Note: In the TMT Interview Guides, we get into which sub-sectors of tech, media, and telecom are getting the highest valuations and what sponsors - who are a major driver of deal activity - are most interested in. For example, within telecom there are eye watering multiples for tower assets (which are, in our view, some of the most interesting businesses out there to own).
Even with valuations high across the board, there has never been more uncertainty within the C-Suite and more paranoia about needing to ensure that they aren't disrupted. This is an unmitigated good for M&A bankers, whether these strategic shifts end up working out or not (most, in our view, won't).
You can see below that TMT M&A is still leading the way, despite an incredibly active 2020 as well, relative to all other major coverage groups in 2021.
Further, the level of deal activity in 2021 will significantly eclipse what we've seen over the past decade (despite, again, TMT being the most active coverage group over this period).
What We Hope to Do With TMTBanking
Many who say that they want to join TMT have little to no understanding of what TMT involves. We can be quite confident in saying that, because we were in the same boat.
From semiconductors, to IT services, to cable operators, to SaaS startups. TMT covers an incredibly wide spectrum (no pun intended) of companies.
The entire purpose of this little site is to give those thinking about trying to break into TMT banking the practical resources they need to do so. We think this can best be done through Q&A style guides covering the major sub-sectors of TMT (to give you a flavor of what TMT covers) along with more advanced technical questions (since interviews for TMT groups tend to be a bit harder than for other coverage groups, given how competitive they are).
So, on this site we'll be making little posts on various aspects of TMT banking and harder technical questions when we have a rare bit of free time. And, of course, we've also spent a non-trivial amount of time putting together the TMT Interview Package for those who are serious about breaking into TMT.
To be clear, we have no desire to ever turn this into something larger than what it is. The reality is that both of us really enjoy trying to teach concepts and come up with ways of explaining things that perhaps are a bit complicated or not overly intuitive.
So, TMTBanking.com is really a labor of love for us. Something that's been both fun and rewarding to put together.
We also have a slight ulterior motive in trying to get people interested in TMT sub-sectors outside of those that are most well known and publicized. We both feel very strongly that there are certain sub-sectors of TMT that are, in many respects, more interesting to be involved in.
While we can't promise to be constantly updating the site given how busy we are, we do hope to keep putting out interesting posts about once a month or so to hopefully help those prepping for interviews.
As always, feel free to reach out with any feedback. And if you end up getting the guides and securing an offer, be sure to let us know! It always makes us thrilled to hear.
If you're preparing for your interviews, we wish you the best of luck!