What does the future hold for global dealmaking in telecoms?
"The mergers and acquisitions (M&A) market is booming," he explains. "We are probably enjoying the longest cycle of M&A growth ever recorded. There is an extraordinary level of confidence among investors, and we have witnessed valuation records and intense competition, in particular for high-quality assets." He continues: "The subsector that is arguably most active is communications infrastructure, which comprises fibre, towers and data centres. We expect this trend to continue and there to be a good mix of mid-sized secondary transactions, as well as some large corporate divestitures."
Bouten states that the value proposition that communications infrastructure companies provide in an ever-connected world is dramatically rising.
Farida Douiri, senior director of M&A at Etisalat, the telecommunication corporation, is in agreement. She says: "The telecoms market as a whole has been changing and there is no sign of it cooling down. This is signalled by intensified in-market consolidation, a rise in cross-border deals and rapid technology progress.
"The current wave of M&A transactions will likely continue as traditional operators seek to re-focus on core markets, rationalise their portfolio and actively pursue areas of rapid growth, such as digitalisation. Global infrastructure M&A will likely accelerate as the tower divestiture trend intensifies, substantial capital from investment funds remains undeployed and the regulatory framework evolves."
Recent Mergermarket research confirmed that the technology, media and telecommunications (TMT) sector has experienced heightened M&A activity. According to the analysts, global TMT values reached US$371.1 billion, representing a 19% share of global M&A, in the first half of 2018 alone. Furthermore, EY statistics revealed that UK deal making had an impressive start to the year with telecoms at the top of the list in terms of sector with the highest transaction values (US$44.6 billion).
"The European telecom incumbents have been relatively cautious – both in terms of M&A, as well as overall investment,"
Bouten believes that there are still a large number of deals waiting to be done over the next 12 months. Compared to the US, Europe is more fragmented and has seen less consolidation. But he expects this to change with cross-border M&A a key trend.
Douiri concurs: "Traditional telecoms operators have been very active with in-market consolidation being a common trend across geographies. Operators divesting assets to reduce leverage and balance sheet pressure has also been a key M&A trend. We have seen stronger cross-border activity from major incumbents – mainly in emerging markets – with substantial firepower available for inorganic expansion.
"The fundamental change lies in the constant digital transformation affecting telecoms. With the arrival of cutting-edge technologies, the digital value proposition is a key priority for major telecoms operators. There is a growing focus on digital capabilities and services in an effort to capture growth. The potential for cross-segment synergies from adjacent digital industries remains largely untapped."
Deals involving media and telecoms companies helped drive worldwide M&A activity to new highs in the first half of 2018, according to Thomson Reuters Deals Intelligence data.
Telecommunications companies' network upgrades to 5G led to Sprint Corp and T-Mobile US Inc joining forces in May – a deal worth US$26 billion. It was a smart move, as further EY data signals that "tech-smart deals" will enable companies to future-proof their operations and address ever-evolving business models.
Such M&A activity will be a major discussion point at the upcoming Comms Finance World (November 28, London); as part of the three-day leadership summit, TMT Finance World Congress 2018. The event, sponsored by EY, Tillman Infrastructure, Digital Bridge, Linklaters, Hardiman Telecommunications, Upslide and the IFC offers more than 400 industry investment, M&A and finance professionals the opportunity to discuss and plan the biggest telecoms, media and technology infrastructure deals.
So what does the future hold? Bouten suggests that it will be interesting to see how big telcos will adjust in a world where the infrastructure layer is increasingly becoming invisible to end-users. Whilst KPMG's M&A Predictor suggests that M&A activity in the technology sector will rise by 10 per cent compared to telecoms sector, which will remain flat.
Douiri disagrees. In the short term, she sees the trend for rationalisation continuing, as well as a period of M&A integration for those recently active operators.
She concludes: "In the future, this push towards digitalisation from traditional operators will continue. Although we have seen many operators building these digital capabilities from within or via partnerships, I see further inorganic growth as more viable targets become available."
For more information about Comms Finance World 2018, including tickets, please visit tmtfinance.com/