Panellists:
Tim Knowles Head of M&A, Etisalat Group
Robert Knorr Senior Partner, Mid Europa Partners
Christian Lesueur Managing Director, Head of TMT Investment Banking, EMEA, UBS
Hervé Malaussena Managing Director, Moelis & Company
Roger Barron…
Panellists:
- Tim Knowles
Head of M&A, Etisalat Group - Robert Knorr
Senior Partner, Mid Europa Partners - Christian Lesueur
Managing Director, Head of TMT Investment Banking, EMEA, UBS - Hervé Malaussena
Managing Director, Moelis & Company - Roger Barron
Co-Head Global TMT Practice, Linklaters (moderator)
With the global economy improving, telecoms insiders predict the upswing in M&A activity will continue in 2014, although buyers are still treading carefully.
At the recent TelecomFinance conference in London, an international panel of M&A experts generally agreed the improving economy and trends toward convergence and consolidation are likely to drive M&A activity this year.
Christian Lesueur, head of TMT investment banking for EMEA at UBS, noted the aggregate value of M&A deals in 2013 totalled about US$140bn – the highest level since 2001. This does not equal an increase in deal volume, though.
“There are fewer deals, but they’re getting bigger,” he said.
Lesueur said operators are slowly but surely regaining the confidence to do big deals, hopeful there will be less uncertainty going forward.
“Uncertainty is the enemy of M&A, but over the past five years everyone’s learned to operate with a bit more of it.”
More strategic deals
While operators have tended to focus on organic growth and cost cutting in recent years, they’re generally expected to look more closely at M&A opportunities which make both strategic and financial sense going forward.
At the same time, according to Hervé Malaussena, managing director at Moelis, operators are facing increased competition from private equity and hedge funds for sizeable assets, which tend to command relatively high prices.
“Over the last two years, there’s been a lot of courage coming back into the board room, but valuations are high as well so you have to be careful not to overpay … They’re still very thoughtful processes in general”.
Will a general rebound of M&A result in more cross-border transactions?
Lesueur remained cautious, predicting that most M&A deals in Europe will be domestic given the economy is still far from booming and the numerous barriers to cross-border transactions, such as strict regulations and strong competition.
Robert Knorr, a senior partner at PE firm Mid Europa Partners, explained that, for his team, 2013 was a year of telecoms divestments rather than investments, highlighting the sale of its stakes in Orange Austria – which closed early last year – and Serbia’s SBB/Telemach as prime examples.
The firm had invested “quite heavily” in mobile assets in Central and Eastern Europe over the past decade and is still seeing growth, he said. While this growth factor is clearly of prime importance for PE, he noted that the mobile sector’s heavy regulation and intense competition can act as deterrents.
MEA telcos review portfolios
Etisalat M&A head Tim Knowles focussed on markets in Middle East and Africa.
Both his company and large rivals in Africa are reviewing their portfolios, thinking about which markets it is really beneficial to be in. They all have assets they would like to divest or restructure, he said, either through exiting or consolidation. He acknowledged that selling second or third-tier assets are typically the hardest deals to do, as risk-wary potential buyers are put off by the difficult market conditions.
That said, Knowles said there is a move toward in-market consolidation in the region, particularly in Africa.
Knowles and Malaussena highlighted towers as a particularly interesting sector, pointing to the numerous competitive processes underway. In Africa, Malaussena said consolidation is likely to prompt a surge in tower sales.
“I think we’re in a situation where you will actually have more towers coming to the market than you will have people to buy them in emerging markets.”
But the same does not necessarily apply for Europe, as Christian Lesueur pointed out. Here operators tend to prefer network sharing agreements and keep the benefits of tower ownership to themselves.
As for convergence, panellists generally agreed it will continue to drive M&A in a lot of markets. Knorr noted that potential buyers with convergent strategies are particularly interesting to PE as they see that as the way of the future.
“If you are selling to PE, it is very important how they see the exit in four to five years time. I think it’s very, very clear that many assume convergence will happen and they will get out very nicely – and that clearly drives the pricing.”
Panellists also highlighted the heightened number of IPOs recently, with Lesueur predicting there will be “a lot more” in store.
“The option has become a lot more viable – a lot more are thinking about it.”
