Consolidation to pick up speed

Guillaume Sachet, Quentin Derome, Kelvin Teo - Accenture
22 Nov 2010

M&A transactions in the APAC telecom industry have risen since 2005, driven by the expansion of both local and foreign players. From 2005 to 2008, transaction volumes doubled and values quadrupled. Deal premiums also soared past the overall industry average. They peaked at 48% in 2007, almost twice the size of those paid for other industries, making it a relatively expensive industry for M&A activities.

The global financial crisis brought this to an end. Telecom deals fell by more than 35% in volume and 80% in value. Deal premium collapsed to their 2005 level (~25%). This stood in contrast with the overall industry premiums that rose through the crisis, from 11% in 2006 to 35% in 2009.

While telecom transactions in APAC have historically accounted for a smaller share of M&A deals relative to other regions (7% vs 10% for North America and Western Europe), has the 2008 crisis reset the industry from being an "under-represented, over-valued industry" to an "under-represented, under-valued industry", creating a window of opportunity for M&A?

Based on the analysis of 225 completed M&A transactions (excluding private-equity deals) with a further focus on 40 public deals, we look at the M&A trends in APAC as well as the acquirer profiles and deal valuations and premiums.

Since the beginning of 2010, M&A activities in the industry in the region show signs of revival. We observe four trends that could deeply modify the landscape next year.

First, the revival of M&A deals spans across APAC, with Greater China and South Korea being the primary actors in volume (in Q1 both regions were driving 60% of all transactions).

Large transactions and deal values are also on the rise. Although transactions are essentially small to mid-cap deals (82%), the proportion of large-cap deals has been steady from 2005 to 2008 (12-15% of total). For Q1, large-cap deals represented over 20% of all transactions with their average value of $300 million, a 50% increase from 2009.

APAC, traditionally a domestic M&A market, is witnessing increasing cross-border activity. >From 2005 to 2009, 80% of the deals were domestic. In Q1 2010 however, transaction levels show rising cross-border volumes.

Finally, although there is limited evidence of horizontal integration through M&A between telecom and media companies (since 2005, such convergence deals have remained marginal and driven less than $5 million in value), convergence is likely to trigger a new wave of M&A in 2011.

Although a revival of M&A in the APAC telecom market is yet to confirm across 2010 and 2011, the above trends are certainly announcing an exciting shift for the industry, especially as we see a rise in Pan-Asian "empire builders".

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