Telcos leverage M&A to pick up talent and bolster their digital assets
Telecommunications companies, seeking to reimagine themselves in the face of digital trends are, among others, leveraging mergers and acquisitions to pick up technological advantages and talent. Organic growth initiatives, however, remain on the cards for many – as good quality targets become harder to find.
The telecommunications industry finds itself in a period of upheaval as new technologies, new competitors and new expectations from consumers disrupt tried and tested ways of working. A recent report from A.D. Little for instance highlights that telcos struggle with innovation, and risk falling into, potentially unrecoverable, decline.
To better understand key trends in the telecommunications industry, EY recently surveyed, for its 'Telecommunications companies sharpen M&A focus in the drive towards digital business models' report, 1,700 executive level respondents from 46 countries, among which, telco leaders.
According to the respondents, the effect of digital technology on their business model is the most important risk to their business – with companies increasingly facing tough investment decisions related to automation, technology bets and competing increasingly with technology-enabled cross boarder competition.
Sector convergence was stated to be a risk by 22% of respondents, while 34% of respondents identified technology advances and digitalisation as the second most disruptive impact on their core business.
In terms of telcos’ plans for acquisitions, a slight increase is noted to 48% of respondents for the most recent data point, up from 43% in April 2016 but slightly lower than the same time last year. The industry’s willingness to pursue an acquisitions remains lower than the global average for companies, which stood at 57% in October last year.
The survey also highlights that around 60% of telcos are planning to focus on organic growth efforts, in part due to a lack of quality targets for inorganic expansion. Around 41% are opting for a mix of acquisition and partnerships, although, the firm notes, the latter has resulted in less positive returns.
The research also found that more than a third of companies already have five or more deals in the pipeline, although well below the global average for five or more deals, which stood at 49%. In terms of deal value, around half of telcos are moving on deals worth $250 million or less, which is somewhat more than the global average of 42% of companies. Finally, telco respondents are upbeat about deal closure, with 40% of respondents looking to close three or more deals in the coming 12 months.
In terms of telcos’ key reasons for leveraging inorganic expansion, the acquisition of talent was ranked either the most important or second most important by 71% of respondents, well above that of the global average of 52%. The need to acquire talent is, the research notes, positioned around companies looking to improve their efficiency around automation. Around a third of respondents noted that growing their market share was the primary strategic driver for entering into an acquisition agreement within their current sector.
