Escolar Documentos
Profissional Documentos
Cultura Documentos
The Telecommunications sector is considered one of the fastest growing and highly profitable sectors
in the services industry. Over the years rapid changes in technology and integration of wide ranges of
services has enabled the industry to achieve huge economies of scale and scope resulting in high
market penetration across diverse geographies and income groups. Unlike traditional industries, the
telecom sector has witnessed dynamic changes owing to factors like de-regulation, technology
innovation, market globalization, bundling of products and services, reduced competitive barriers,
product-market redefinition etc. With these changes companies had to re-align their strategies with
respect to the uncertainties prevalent in the industry so that they are well-equipped to face the future.
Mergers and Acquisitions is one such strategy pursued by companies to diversify the risks arising out
of uncertainties or take advantage of new growth opportunities.
M&A
O b je c
t iv e s
H ig h G ro w th ,
P ro fi t a b ilit y
(E B IT D A /R O IC )
B ra n d Va lu e /
M a rke tin g
C o s ts
M a rke t
Expansi
on
In fr a s t ru c tu re
S h a rin g (To w e rs
e tc )
Re a dy
a v a ila b ility o f
S p e c tru m
For diversification, Cross-border deals are deemed to be more viable than organic growth in foreign
markets. Some of the reasons:1.
2.
3.
4.
5.
1600
1400
1200
1000
800
600
400
200
2001 2002 2003 2004 2004 2005 2006 2007 2008 2009 2010
Deal Value ($mm)
No. of Deals
Cross-border deals have been constantly beaten by in-country deals both in number and value due to
the increased preference given by the operators to home markets. This can be attributed to the factors
like information asymmetry, negotiation problems, post-merger integration issues in international
deals.
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Local Market Deals
Despite the dominance of in-country deals, the first half of the last decade was influenced by
changing regulations in Europe and consolidation in America. However as the markets in those
regions approached the final phase of consolidation, companies have turned to emerging economies in
the latter half for high growth.
The Emerging market deals have increased from 21% to 59% in the last decade.
500000
450000
400000
350000
300000
250000
200000
150000
92400
82600
100000
54600 62560 62100 48000 51250
34000
23800
22000 22500
50000
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Emerging Market Deals (with % of global deals)
Global Deals
-8.30%
Food Retail
-9.80%
-11.10%
Pharma
-12.60%
-15.20%
Computer Hardware
-19.20%
Automobile
-21.10%
Retail Clothing
Airlines
-22.80%
-30.40%
Banks
-32.70%
However the credit-crunch has had an impact in the M&A activity in the sector as it posed problems
for financial investors. Lack of debt financing created a significant barrier for Private Equity players
in 08 and 09 as deals by these players reduced drastically.
This provided more opportunity for Corporate Investors who were able to execute their deals via
available cash flows and bond financing. Most companies had strong balance sheets, with Net
debt/EBITDA value at around half its peak value in 2000. However the amount of senior debt falling
due has increased which is expected to make refinancing tougher and expensive for these corporate
investors. Most of these deals were from Western European companies, who have sought out for
higher growth in emerging nations.
These metrics however do not point out the cost/investment related advantages in valuations. When
valuing new businesses in adjacent segments, metrics such as ROIC exhibit a more accurate return
than EBITDA margins.
The following table defines the evolution of new metrics with the progression of new products and
services from voice to data.
The future of the TMT sector is expected to be strongly driven by the Technology brands. Brands like
Google, Apple and Microsoft are redefining the very nature of the industry. Recent example of
Googles acquisition of Motorola Mobility implies an aggressive stance to protect its Android future
from other platforms.
Convergence is gaining momentum in Western Europe as consolidation is in final phase.
Emerging Market Focus
Emerging Markets have already been the active focus for M&As for the past few years. High growth
rates, rural penetration, demographics etc are some of the common factors.
Conclusion
Despite the economic situation, Telecom M&A deals are here to stay and the future of the same will
be significantly driven by Cross-border deals. Such deals not only blur the geographic boundaries, but
are also expected to bring together the distinct value chains in Media, Internet, device and Telecom
sectors.
References/Sources
1. Thompson SDC Platinum
2. Bloomberg, Dow Jones Indices
3. TMT Industry Insight (E&Y) and Merger activity (Dealogic)