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Valuation drivers in the telecommunications industry - Telecom M&A activity emerges - EY - Global

Valuation drivers in the telecommunications industry

Telecom M&A activity emerges

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Key value drivers, valuation multiples and different methodologies are topping the telecom M&A agenda.

Merger and acquisition (M&A) activity in the telecom industry is emerging from its slump. As the consolidation trend continues, operators are pushing to buy or sell telecommunications assets. This report explores a number of industry issues that are at the top of the agenda for M&A and finance departments.

1. Financial trends

Consolidation is alive and well. And we don't foresee the trend stopping anytime soon.

  • The markets in the US and Western Europe are maturing and have never been more competitive
  • Revenues from fixed-line services are falling
  • Technology is driving significant investment programs (e.g., Fiber)
  • Regulatory pressures are increasing

Telecoms operators have to grow through acquisition if they are to win the challenge of acquire or be acquired.

2. Valuation criteria and findings

Using the main valuation criteria used by investors in the telecommunications, we examine key value drivers, valuation multiples and different methodologies. Our findings include:

  • Large telcos that operate in emerging markets have higher valuation multiples than their peers in mature markets. Investors place a premium on growth prospects, so long as they are well monitored and diversified.
  • Additional risk is reflected by higher betas (and hence higher costs of capital) for operators in emerging markets.

3. Purchase price allocation (PPA) methodologies

Telcos acquiring assets need to clearly communicate to the market the value of the assets acquired and the liabilities assumed in an acquisition. To do so, they need robust valuation techniques and methodologies.

In the following sections, we explore M&A activity in the telecommunications industry, specifically examining:

  1. Financial trends
  2. Valuation criteria and findings
  3. Purchase price allocation (PPA) methodologies


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