Dotcom bubble 2.0? Is the TMT market sustainable?

Share on facebook
Share on twitter
Share on linkedin

Remember eXcite, or

These darlings of the first tech boom in the late nineties are now best known as symbols of its excess, with stories of private jets, millions spent on advertising and lavish parties before they all collapsed in the dotcom bubble.

Even established companies were drawn in. At the height of the market Cisco overtook Microsoft to become the most valuable company in the world with Chief Financial Officer Larry Carter predicting good times ahead; “I think it will be exciting given where the Internet is taking us. It’s a tremendous opportunity.”

Fast forward to the present and Cisco share value had dropped 86%.

There is undoubtedly a lot of heat in the technology, media and telecoms market (TMT) again today, with the latest figures from PwC highlighting 468 technology deals were announced in Q3 2017, up by 35% from the same period in 2016, and three megadeals of over $5 billion were announced in Hardware, IT and Internet.

It should be no great surprise that investors are looking for tech investments – recent research by Microsoft estimates that 50% of all businesses feel they will face digital disruption by 2018, with consumer preferences and new technologies driving innovation.

So, should we be worried about another potential bubble burst, or is today’s market different?

While we have seen recent warnings about the risk of ICOs (initial coin offerings), most investors at the more established end of the asset class spectrum have less to worry about.

Recent sector trends suggest that investors are increasingly focusing on infrastructure deals (such as IT, transport or communications systems) where there are real life assets to acquire, rather than the promised e-commerce riches of the late nineties.

Deals in broadband fibre and mobile towers are rising across Europe, and according to Linklaters, around $1 trillion worth of funds are available for European infrastructure investment over the next decade.  With governments committing to increasing budgets for infrastructure, and technological updates required to most physical infrastructure around the world, investors are recognising this as a sustainable, long-term choice.

That said, the consumer side of the TMT market remains attractive. PwC’s latest TMT report predicts that those that invest in successfully engaging consumers are well placed for growth.

UK Fintech investment appetite remains strong despite Brexit and is trailblazing the way in the TMT sector. The Fintech revolution caused the single biggest disruption to the financial sector since Margret Thatcher’s ‘Big Bang’ in the 1980s – according to KPMG, UK 2017 Q2 investments reached a record $1.4 billion.

Rather than posing a threat to the market, Brexit has the potential to stimulate growth in Fintech investments even further, as financial services companies look for new technologies and new ways of structuring their businesses amidst financial uncertainty. Other challenges to financial services companies, such as PSD2 and changes to the payments landscape, provide opportunities for Fintech solutions. With forecasters predicting continued growth into 2018, Fintech shows no sign of declining.

Surprisingly, given that 2018 is almost here, there are still significant opportunities in retail to take established brands online, as we highlighted in a recent blog, and we expect to see this trend continue as investors look to exploit untapped channels.

Given the continuing boom in consumer demand for technology and the increasing digitisation of all parts of our lives, TMT investment looks set to continue to boom.

At the riskier end of the market there will undoubtedly be failures, as there will in every market, but seasoned investors, perhaps learning the lessons of the last bubble, are investing in infrastructure and established brands that have untapped potential suggesting a more measured approach than 20 years ago. Prequin data shows that in the last 24 months, infrastructure deals outnumbered riskier consumer deals by three to one – 63 infrastructure deals took place, as opposed to just 21 consumer deals.

And the potential for huge returns in the tech sector remains as true today as it has ever been, with recent TMT exits showing potential for double-digit returns.

Back in 1999, eXcite turned down a deal to buy Google for $750,000.

Hopefully, today’s investors would know a good opportunity when they see one.

To find out more about how onefourzero’s digital due diligence and insights can help you identify opportunities for growth and potential risks, contact