M&A in the telco space – volatile but dynamic. Here’s a review of recent activity.

The Covid-19 pandemic. The fall-out from the Covid-19 pandemic. Supply chain disruption. Tech stock prices/ valuations. Geopolitical realignment. War in Europe. Inflation. Energy instability.

Yes, the world of the early 2020s is full of turbulence. And everyone – from consumers to CEOs – is affected.

The uncertainty surrounding the global economic picture is certainly impacting the mergers and acquisitions sector. Recent M&A data reveals just how much. In short, deal activity is all over the place.

Recent numbers from analyst Bain & Company indicate the extent of this unpredictability. The company reported that in 2021 the telecommunications industry saw deal value rising by 48 percent with record-high multiples reported across most subsectors. Meanwhile private investments also grew –  by 100 percent – with multiples rising faster than their public trading equivalents.

Great news. But then came the slump. Bain revealed that telco M&A declined by nearly 40 percent in value over the first three quarters of 2022. This is clearly demonstrated in the market cap of most publicly traded CPaaS companies, who were the leading unicorns in the last 5 years.

It attributed the fall to the soaring cost of debt. To that, we can certainly add all those macro-economic factors listed at the beginning of this post. Combined, these factors have impacted CEO and investor confidence, making dealmakers more cautious in 2023.

Technology, media, and telecommunications – still ‘most active’ for M&A

There’s a similarly nuanced picture in the related field of technology, media, and telecommunications (TMT).

According to an analysis by PwC, this sector was the single most active for M&A in 2022. It argues that the need for digital transformation is driving businesses of all types to reconfigure – which means more M&A.

But this hasn’t exempted TMT from the ‘headwinds’ holding back all deal makers. PwC reported that the sector experienced M&A declines in 2022 compared to the previous year of 21 percent by volume and 36 percent by value. Although these figures were still up 25 percent and 38 percent respectively on 2019.

It concludes: “Dealmakers will be more cautious in 2023, and the hurdle to do deals will be higher, especially larger ones which may attract greater regulatory scrutiny. Nonetheless, we expect that strategic deals and those involving high-quality target businesses will take place.”

What’s ahead? Opportunistic M&A and increased JVs

We agree. There is plenty of business to be done. We expect successful dealmakers to target companies needing capital or those offering an accretive platform or technology. Meanwhile, the cost of financing may affect transaction values, particularly for high-growth businesses focusing on revenue growth, customer acquisition, and more significant deals.

It’s also likely that cash-rich companies and investors will capitalise on lower asset prices. This should lead to opportunistic M&A and increased joint ventures, partnerships, and other arrangements.

And what about the messaging market? Well, it is still growing – although in some areas margins are shrinking. The sector’s main priorities are reliability and the secure delivery of messages, while fraud remains a big concern. Deal makers will probably target companies making progress in these areas. Product diversification and speed to market will be key for both existing and new entrants in the messaging market.

Headline telco M&A deals in focus

As the above analyses shows, telco M&A might be unpredictable but it still delivers some of the world’s most high profile and valuable strategic mergers and acquisitions. 

In the TMT space, the biggest recent deal came in May 2022 when AT&T announced the spin-off of its WarnerMedia business, merging it with Discovery, Inc. This deal, valued at approximately $43 billion, was made to create a new global entertainment giant. It would combine brands such as CNN, HBO, and Warner Bros with Discovery’s diverse portfolio of non-fiction, sports, and international entertainment content.

And the reason for the merger? Again, digital transformation played its part. Essentially, each company wanted to compete more effectively in the evolving media landscape and capitalise on the growing demand for streaming services.

In the telco space, the biggest recent deal dropped in September 2022. This saw global investment firm KKR acquire a majority stake in Telefonica Chile, the country’s largest telecommunications provider, for approximately $1 billion.

Here, the key driver was infrastructure. Telefonica Chile wanted to accelerate the growth of its fibre optic network and strengthen its position in the market. Meanwhile, for KKR, the acquisition was part of a broader strategy to invest in digital infrastructure assets worldwide, supporting the increasing demand for connectivity and digital services.

Another telco area inspiring many deals is the Internet of Things. One stand-out acquisition in this space was made by Aeris Communications, which completed its purchase of Ericsson’s IoT assets in March 2023. This deal gives Aeris access to Ericsson’s portfolio and customer base. The two companies say the combined offering will connect over 100 million IoT devices worldwide, covering 190 countries for 9,400 enterprises. 

At around the same time, KORE Wireless was buying Twilio’s IoT business. Twilio’s IoT division has a strong reputation for providing reliable and scalable solutions. KORE said the deal was “part of a growth strategy to provide customers with a unified, seamless approach to launching IoT solutions as the world’s leading pure-play IoT provider.”

Key drivers of telco M&A to come

All the above key deals underscore the importance of strategic alliances and consolidation as industry players strive to secure existing markets, penetrate new ones, pool resources and expand into new geographies.

This is especially so in a global telecommunications landscape that looks set for further transformation. All over the world, there is a growing demand for connectivity from verticals of every type. This will present many opportunities – and also challenges – for communication service providers (CSPs).

We believe the key trends shaping the industry in 2023 and beyond will include:

  • Bundling products and services
  • 5G monetisation
  • Fixed wireless access
  • Geographic expansion
  • An increased focus on sustainability

To capitalise on the opportunity, CSPs must cooperate with competitors to develop edge solutions that promote automation and innovation while reducing costs for enterprise customers. If you want to know more about GTC’s M&A Services, please contact us.

Global Telco Consult (GTC) is a trusted independent business messaging consultancy with deep domain knowledge in application-to-person (A2P) services. GTC provides tailor-made messaging strategies to enterprises, messaging service providers, operators and voice carriers. We have expertise in multiple messaging channels such as RCS, Viber, WhatsApp, Telegram and SMS for the wholesale and retail industry.

GTC supports its customers from market strategy through service launch, running the operations and supporting sales and procurement. The company started in 2016 with a mission to guide operators and telcos to embrace new and exciting opportunities and make the most out of business messaging. For more information or industry insights, browse through our blog page or follow us on LinkedIn.

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