Inside telecommunications Issue 12

Mergers and acquisitions

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Momentum in global mergers and acquisitions remains strong. Deal volume in the final three months of 2013 stood at 157 transactions, in line with the 155 deals registered in the third quarter and 165 in the second. Total deal value in the final quarter of the year stood at US$39.4b — although this represented a sharp sequential drop of US$173b registered in Q3 2013. The latter figure included Verizon Communications’ acquisition of Vodafone’s 45% stake in Verizon Wireless, one of the largest corporate transactions of all time.

Considering regional trends, Europe, Middle East, India and Africa (EMEIA) continues to act as a focal point for deal activity, comprising more than half of global deal value during the quarter at US$21.3 billion, although below the US$30.7b registered in the preceding quarter.

EY – Telecoms M&A deal value by target area Q3-Q4 2013

Latin America in the spotlight

The largest deal of the quarter saw Portugal Telecom announce in October that it would merge with its Brazilian affiliate Oi.

Elsewhere in the region, France-based Orange has agreed to sell its Dominican Republican unit to Luxembourg-based investment company Altice for US$1.44 billion. In addition, Altice acquired an 88% stake in Tricom, a cable company that offers both fixed and mobile services in the Dominican Republic, which it intends to combine with Orange’s mobile business.

Private equity activity on the rise

Altice is one of a number of private equity firms increasing its exposure to the telecommunications sector. Beyond its acquisition of mobile and cable assets in the Dominican Republic, Altice has also increased its stake in Numericable, the French cable operator.

Other private equity players have also been active. In November, Czech investment company PPF Group announced an agreement to buy out Telefonica’s majority stake in its Czech unit for US$3.3 billion, also acquiring the Spanish carrier’s operations in Slovakia. Although the holding companies in both countries will change their names, the unit will continue to operate under the O2 brand for the next four years.

Meanwhile, Kohlberg Kravis Roberts, a US-based private equity firm, acquired United Group from UK-based investment firm Mid Europa Partners in October 2013.

Stake increases in India

Before new guidelines were announced in the M&A sector, a number of transactions took place in India during the final three months of 2013. A number of players have taken advantage of sector liberalization whereby foreign entities are allowed up to 100% ownership of local companies.

EY - top telecoms M&A by deal value, Q4 2013

Consolidation comes to Hong Kong

The single largest deal in Asia-Pacific during the last three months of 2013 arrived in the form of HKT’s acquisition of Hong Kong-based mobile operator CSL from Australia’s Telstra for US$2.4b. HKT, the fixed-line unit of PCCW, has bought CSL, which it had originally sold in 2000 to Telstra, as it seeks greater scale in Hong Kong’s telecommunications sector.

Japanese telcos look overseas for growth

Japan’s carriers continue to demonstrate considerable appetite for foreign expansion, with all three of the country’s leading players striking deals in the last three months of 2013. NTT Communications, the ICT arm of NTT, undertook two acquisitions, taking full control of Virtela Technology Services, a US-based IT infrastructure and security management services provider, as well as an 80% stake in RagingWire, a US enterprise data center service provider.