BrazilTelecom M&A deal value hits $1.1 trillion in five years
Total merger & acquisition value in the telecommunications industry has surpassed the $1 trillion mark for the past five years, on the back of major recovery of deal value in the previous year, according to a new report by consultancy Bain & Company.
The study assessed all significant acquisitions in the telecommunications industry, and found that the vast majority of deals occurred in the Americas (53% of cumulated global deal value from 2013 to 2018) and Europe, the Middle East and Africa (37%).
Analysis of the data shows that nearly half of all deals were scale deals, representing 45% of the total $1.1 trillion merger & acquisition deal value. Such deals are aimed at expanding an existing core through among other areas creating synergies and market leadership. Most of these deals took place in Europe, the Middle East and Africa, where convergence – becoming a fixed and mobile player – is most advanced.
“Traditional telecom M&A consisted largely of in-country consolidations to capture scale synergies,” said Alex Dahlke, a partner at Bain & Company, a global strategic and management consulting firm.
Scope deals meanwhile help a company expand beyond its core, for instance aimed at enlarging a telecommunications company’s portfolio beyond connectivity and into IT or infrastructure services. Scope deals accounted for 20% of M&A deal value, with the majority of this activity involving large media deals in the Americas.
Around 15% of all deal value was intended to enable a company to enter other countries to create growth relays (geographical expansion), and the remaining 10% was spent on (partial) asset divestment – this includes the carve-outs and expansions of infrastructure assets, especially towers and fiber.
Looking ahead, Dahlke said that in the rapidly changing telecoms landscape, M&A is expected to accelerate amid a challenging climate – the nature of business models are changing at a time when operators face growing pressures to invest in costly upgrades to their networks.
“In the next era of telecom, we expect scope deals in particular to accelerate, which will enrich telecom companies’ portfolios beyond existing models, and a rise in highly promising infrastructure deals.”
Main objectives of scope deals include expanding into new data-driven areas such as the Internet of Things or media, and creating revenue synergies from cross-selling and nurturing a higher customer loyalty. The good news for operators is that scope deals tend to be smaller in size than scale deals, however; “telecom companies should follow the golden rule of aligning M&A strategy with corporate strategy… and understand how M&A can benefit close adjacencies.”
