The telecommunications sector is unlikely to escape the strong momentum of mergers and acquisitions. What does 2022 hold in store for telecom companies? Experts at AURIS Finance, a merger and acquisition consultancy, give you their analysis.
The telecommunications sector stands out in the M&A market. After some major moves in 2014-2015, acquirers lost interest in this type of asset for a while. Private investors now appear to be making a comeback, and the sector could soon be the focus of a number of M&A operations.
Undervalued assets
Since 2017, listed telecom companies have struggled to return to their historic highs. These companies are frequently valued less by financial markets than companies in other industry sectors, particularly in Europe. This is because of the industry’s uncertainty. Some shareholders who prefer to invest in more instantly profitable stocks may be put off by the high level of investment and the promise of long-term profits. Specifically, the regulatory aspect, which weighs on margins through the requirement for a nationwide roll-out of fibre optics, is a constraint on companies’ freedom of action. Finally, the cost of acquiring new customers, due to the fierce competition between operators, is also a drag on profitability.
Orange makes its move in Europe
All these factors explain the lack of investor interest in telecommunications. But the situation is changing. There are already clear signs that private investors are making a comeback, as evidenced by the recent acquisition of VOO SA by Orange Belgium and the €5 billion purchase of Spain’s MasMovil by a trio of investment funds. French operator Orange is even said to be in the process of merging its Spanish subsidiary with MasMovil to become one of the country’s top four operators. The move would bring Orange closer to the size of the historic local player, Telefonica.
Telecom Italia, a highly coveted operator
The other major move could involve Telecom Italia (TIM). The group is currently the target of the American fund KKR, which is prepared to pay around €33 billion for its acquisition. This takeover would lead to the privatisation of the Italian company, in which the state currently holds a 9.81% stake. The Covid health crisis has made all countries aware of the highly strategic nature of telecommunications companies, and the Italian government is closely monitoring any moves by the American consortium to buy this national asset. France’s Vivendi also owns 23.75% of the group.
Further consolidations on the horizon
The telecommunications market is a complex and regulated sector, but it remains a highly strategic one. In the coming months, new mergers are likely to hit the headlines. In this context, the smallest companies will not be left out: suppliers to operators and companies specialising in fibre optic deployment are all likely to be highly sought-after in 2022. The know-how and technology of these small and medium-sized companies will remain essential to the operators’ activities. Mergers and acquisitions take time to prepare. AURIS Finance’s sector experts can assist you at every stage or your transaction.
