President Trump Bans Transactions With WeChat and TikTok
This move, the most recent in a series of political moves between the two countries as tensions have continually risen for the past few years, has escalated the conflict between the two governments, leaving sizable question marks hanging over the future of the global technology industry.
Trump announced the executive orders on Thursday, over a month after the administration announced its increased efforts to begin purging Chinese apps it does not trust from digital networks across the United States. The Trump administration accused Tencent Holdings’ WeChat, and ByteDance’s increasingly popular TikTok apps of being significant threats to US data security.
Despite Trump’s attitude towards the apps, Chinese officials have made a statement on Friday claiming that every company complies with the laws and regulations of the US, also warning that the country will “bear the consequences” of its decision to ban transactions.
“The U.S. is using national security as an excuse and using state power to oppress non-American businesses. That’s just a hegemonic practice,” foreign ministry spokesman Wang Wenbin told a media briefing.
The potential ban of popular short-form video app TikTok has been dominating headlines recently. US officials have national security concerns, with fears that the app is collecting data and providing it to the Chinese government on US citizens. Despite Trump’s decision to allow Microsoft until September 15th to complete a deal to purchase TikTok, the company is still “shocked” by the latest developments.
TikTok made a statement on Friday, saying “We are shocked by the recent Executive Order, which was issued without any due process.” The statement also added that the app would “pursue all remedies available to us in order to ensure that the rule of law is not discarded”.
Whilst the ban on TikTok threatens a number of content creators positions, and the personal lives of millions who have leaned on the app for entertainment, especially throughout global lockdowns, the potential ban of WeChat carries more weight.
WeChat has more than a billion users around the world, and compiles services such as those found on WhatsApp, Facebook, PayPal, Uber, and more in one place. These users depend on the app to remain connected with their families and friends whilst split apart by distance, something especially crucial whilst travelling the world is made difficult by the COVID-19 pandemic.
A ban on WeChat could be potentially catastrophic for businesses working in China, and devastating for people with family and friends still there whilst living or travelling in the United States.
M&A activity key lever for future tech sector growth
Despite the continuing uncertainty of the pandemic, the tech sector has witnessed soaring dealmaking activity over the past year, rocketing in the second half of 2020, with the last quarter of 2020 a record one for M&A activity, and momentum continuing into 2021.
Dealmaking in tech sector soars in past year
And the latest figures bear this out with the number of technology M&A deals totalling US$208.44bn globally in Q1 2021, according to GlobalData. While the US holds top spot both in volume of deals (1034) and total value (US$140.61bn), Europe ranked next with 649 deals (US$44.49bn) with the UK continuing its reign as Europe’s biggest M&A market with 204 deals.
In particular, megadeals – those valued at US$5bn or more – soared in 2020 representing 59% of all global technology sector deal value in 2020, up from 47% in 2019, according to the latest edition of the EY Technology Global Capital Confidence Barometer.
This tech sector trend towards megadeals is backed up by EY’s CCB data, with 16% of tech sector respondents planning to pursue transformative deals valued at US$5bn or more in the near-term.
While technology deal activity “all but stopped at the beginning of 2020 after fluctuating between historic highs and lows, companies pivoted quickly and tech M&A exploded in the second half of the year”, says Barak Ravid, EY Global TMT Leader for Strategy and Transactions.
M&A activity level for tech sector growth
Looking ahead to the future, technology executives are optimistic, with nearly half (47%) expecting profitability to fully rebound this year, according to CCB data, compared to 23% across all sectors, and with more than half (51%) planning to pursue M&A in the next year in order to sustain growth.
According to Ravid, M&A activity is increasingly becoming a key lever for growth as businesses look to recover.
“To position themselves for future revenue growth, tech companies are now adjusting their M&A strategy to focus more on a target’s business resilience, digital technology alignment and to gain market share through consolidation,” says Ravid.
However, with an increasingly competitive deal market and ongoing geopolitical tensions, the majority of tech execs expect to see more competition in the bidding process for assets over the next year, primarily from private capital.