Even a cursory glance over last few month’s headlines is enough to confirm that M&A in its various forms is well and truly back on the agenda for telecom operators in the Middle East and Africa.
The year kicked off with news that Qatari incumbent Qtel had reached an agreement with the Tunisian government to acquire a further 15% stake in Tunisiana for $360 million.
Two weeks later came news that Batelco said that it had gained shareholder approval to buy various companies from Cable & Wireless Communications.The proposed deal is significant and includes the entire CWC interest in the Maldives, Channel Islands and Isle of Man, the Seychelles, South Atlantic and Diego Garcia as well as a 25% shareholding in Compagnie Monagesque de Communications, which holds CWC’s 55% interest in Monaco Telecom.
And a couple of days after this, there was news of yet another deal, which also involved a Gulf incumbent: the UAE’s Etisalat Group said that it had submitted a preliminary expression of interest to acquire Vivendi’s 53% stake in Maroc Telecom.
But the flow of deal news did not stop with the Gulf region’s heavyweights. Egyptian telecom group Orascom Telecom, which is majority owned by Russia’s VimpelCom, agreed to acquire all of AAL Corporation’s interest in Globalive Wireless Management, which operates under the WIND Mobile brand in Canada, from the company’s majority owner, founder, chairman and CEO, Anthony Lacavera.
In many ways, this trend is a continuation of an uptick in deals that really gathered pace in 2012, a year when Qtel raised its stake in Wataniya Telecom and Asiacell; Etisalat sold 775 million shares in Indonesian operator, PT XL Axiata, for about $510 million; and France Telecom inked a deal to acquire Orascom Telecom’s stake in Egyptian mobile operator ECMS, the holding company for Mobinil.
For analysts and consultants covering the region’s telecoms sector, there is a certain logic behind the recent deal announcements. After the fallout from the financial crisis of 2008, M&A was largely off the agenda for most operators, which along with companies in most other sectors, were simply taking stock of the situation. For the MEA region’s operators, this was in some ways an important time to assess the merits of the portfolios they had built up in the more frenzied period of deal making in the run-up to the credit crunch.
But now things have moved on, and operators are again looking at the serious challenges they face, not least saturation in their home markets and ongoing competition from the OTTs. Both of these issues play into the growing pattern of deal making.
Saturation in home markets has long been a driver of telecoms deals, and many of the plays that we are now seeing, such as the interest from Gulf telcos in Maroc Telecom, is mainly down to this point. Meanwhile, competition from the OTTs could lead to a more nuanced M&A strategy from operators, who may look to buy into companies involved in sectors such as cloud services, data storage or content aggregation, as some of the experts point out in Deal Makers on page 20 of this issue.
But there are also other drivers. A number of opportunities are likely to present themselves in various parts of the world. Indeed, some of the companies that overstretched themselves in the heady pre-2008 days may look to sell assets that are of interest to players with cash to spare.
Of course, some of the Middle East region’s operators may also look to sell assets that weigh on their balance sheets, although it looks more likely that they will be the ones to acquire.
It is also likely that we will see a broad range of deals, with smaller stake sales or purchases, and joint ventures, coming to the fore. One of the big drivers of M&A is simply the need for consolidation as a means of helping the players in a given industry boost efficiency. So, as many of the commentators point out in our M&A focus on p20, we can probably expect to see a number of deals that are on the fringe of M&A, such as tower sharing deals and joint ventures.
The acquisition of minority stakes will also be on the cards, as this offers telcos the chance to buy into fast growing markets without many of the risks usually associated with a full scale entry into new markets.
With most of the region’s operators having learned some important lessons in 2008-2009, it appears that they have everything to play for in 2013.