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Friday, 21 November 2008

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Little bigs up CEE deals

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Little bigs up CEE deals

Thursday, 21 August 2008

Analyst predicts high M&A activity for Eastern European telecoms.

According to a new report from management consultancy Arthur D. Little, both strategic investors such as telecommunications operators, and (especially) financial investors are benefiting from the prospects of continued high merger and acquisition (M&A) activity in the Central Eastern and Southeastern European telecoms markets. The report, ‘Mergers & Acquisitions: Bust or Boom in CEE Telecoms?’, predicts that the volume of telecommunications M&A transactions is expected to stay on similar levels as the €3.9bn M&A volume realised by the ten largest telecommunications transactions in the region in 2007.

The new report argues that three drivers will sustain high M&A activity in the telecommunications industry over the next 18 months and beyond: privatisation processes, a new wave of CDMA and WiMAX licence tenders, and increasing pressure to consolidate.

According to Arthur D. Little the major Western European telecommunications operators have been on a buying spree for years as they have built up their empires in the region. However, this activity has slowed down over the last year. Mobilkom Austria was the only Western European operator to acquire a further telecommunications operator in Eastern Europe in 2007. In 2008, so far, further empire expansion has also been limited. The most prominent example was the acquisition of a controlling stake in OTE by Deutsche Telekom, which allowed the German operator to expand its empire through OTE’s subsidiaries in Southeastern Europe .

The management consultancy believes that financial investors, who were already on the buying side in six of the 10 largest telecommunications transactions conducted in 2007, can become even more important as they currently face less buyer-side competition from strategic investors. This is particularly true for those financial investors specialsing in the Eastern European markets and experienced in modernising the processes and the outdated network infrastructure of the telecommunications operators in the region.

“M&A activity in the Eastern European telecoms markets should continue to be intensive for the coming 18 months. Apart from long-pending privatisations such as that of Telekom Srbija, we expect a range of start-up operations from the current wave of CDMA and WiMAX licence tenders,” comments Karim Taga, co-author of the report and director at Arthur D. Little’s Telecoms, Information, Media & Electronics (TIME) practice. “These start-ups are often backed by financial investors and will eventually become the object of transactions,”

The report points out that the value creation logic of telecoms acquisitions has become much less clear as mobile market penetration in most Eastern European markets reaches levels well above 100%.

“As market growth slows down, competitive intensity increases, putting pressure on operating margins. We can therefore expect that in the midterm, telecommunications operators in Eastern Europe will face increasing pressure to consolidate in an ambition to realise cost savings or to simply take a competitor off the market,” ventures Christian Niegel, co-author of the report and senior manager at the TIME practice. “Operators that are currently benefiting from many years of strong revenue growth will start to feel the pressure to realise savings by taking over others. We can therefore expect a new wave of cross-border and intranational mergers in Eastern Europe, as we have been observing in Western Europe for several years already.”
John Williamson

the Arthur D. Little report is available for download at
www.adl.com/m_aceetelecom