Cross border investment and M&A in Telecommunications and Technology: What is driving the deal flow between North America, Europe and Asia?


LONDON, Jan. 30, 2019 (GLOBE NEWSWIRE) -- The combination of in-market consolidation, convergence and cross border transactions between North America, Europe and Asia which drove Telecom and Technology M&A during 2018, is expected to continue to stimulate dealmaking in 2019.

Private equity firms and specialist digital communications infrastructure fund platforms, particularly those from the US, have become increasingly active buyers of Telecom & Tech companies in the US, Europe and globally, where there is continuing consolidation among smaller players. While this will continue, dealmakers are also seeking more international expansion, despite the global political uncertainty, to enhance risk diversification, particularly in infrastructure investment.

“There’s a clear trend towards cross-border activity. Broadly speaking, the greater opportunity lies outside of the US in infrastructure,” stated Alan Mitchell, President & COO, Merchant Banking and Private Equity of Spain Telecom. “The European marketplace is diverse, it doesn’t have the control of the incumbents. Whilst the general economic tone of the EU matters, it’s less of a concern than in LATAM where the volatility in currency makes them less attractive.”

Dylan Foo, Partner and Head of Americas Infrastructure Equity, AMP Capital agrees that cross-border transactions will hold up in the face of continued global uncertainty. “Global volatility is nothing new. While all rational investors will likely become a little more cautious, we do not expect any slowdown in investment. The infrastructure investment community has increasingly realized that telecom infrastructure is critical for the provision of essential services in today’s world and incredible growth in data consumption is providing strong industry tailwinds.”

US-China trade standoff
BDO’s recent Horizons report highlighted that the prolonged US-China trade standoff was a core driver of European cross-border deals, despite investment rules and approval processes being tightened. China also looks to have an increasing desire for European technologies, particularly in 5G, which will lead to increased competition in the market with the US.

Mitchell sees this as progressive. “A more open playing field for tariffs with non-Chinese companies is positive. Lower regulatory hurdles, an abundance of emerging technologies and high-tech assets are what buyers look for.”

The precipice of 5G
2019 looks to be a unique turning point in infrastructure requirements with the opportunity that 5G will provide, together with the critical use of wireless networks.

Mitchell outlines, “The development cycle over next two years is going to determine what future technology is all about. Data, fiber – we don’t know what the opportunity is from 5G yet and what the minimum requirements are for products and services of the future to perform. The huge proliferation of devices and 5G will open up opportunity substantially greater than what we’ve seen before.”

The US, however, is a step ahead, with the Verizon/ATT approach to rollout 5G on a city-by-city basis being implemented at a faster pace than its global competitors, which will likely drive increased investment from both domestic and international markets. Outside the US, 4G LTE is the predominant service beyond metropolitan areas, which breeds opportunity to develop and scale operations further.

Cell Towers: a transatlantic battle?
Whilst investment interest is there across telecom infrastructure, the attempted M&A in the past year indicate a continued focus and recognition of the value of cell tower development.

In the US, independent tower owners like Crown Castle and American Tower control the majority of the market, whereas European towers are still largely owned by the operators, though the landscape is changing with Telefonica and Telecom Italia recently selling minority stakes in their portfolios. After a restructuring process, the owners of French telecom infrastructure incumbent TDF are tipped to be looking to sell the business in 2019, according to a recent report by TMT Finance News. 

Mitchell highlights, “The concept of building fiber and hoping for customers is a dated strategy. Securing customers in new fiber 5G builds within towers that have customers and/or the ability to, suits an existing operator. US incumbents are also investing in anticipation of netting their IRR hurdle, and take the opportunity for a more diverse opportunity set, though it’s harder for new companies to do that due to cash flow.”

Will high valuations limit appetite?
Foo thinks not. “Unless an asset has certain tax characteristics, foreign investors will not view valuations any differently to domestic US investors.”

Mitchell and Foo are speakers at the upcoming TMT M&A Forum USA 2019 (April 11, New York). The event, sponsored by Santander and Tillman Infrastructure, offers more than 250 M&A professionals the opportunity to engage with leading figureheads and discuss infrastructure, 5G investment, M&A strategy and changing trends within the telecommunications, media and technology M&A landscape in the US and globally.

“Investors should appreciate that while the space is attractive for sound infrastructure fundamental reasons, it is more operationally complex than many “traditional” infrastructure asset classes and requires real asset management expertise for a successful investment experience.”

Mitchell responds, “Being at the forefront of the 5G development cycle, emerging technology of the future and making money from that is exciting. People will lose money up front. How to invest in growth technology today and leverage for tomorrow will be the true opportunity set.”

 


            

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