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Telecoms and media industries driving the highest M&A year ever

M&A

M&A deals involving telecoms and media companies in 2018 has registered a historic high of over $300 billion, six times higher than last year.

According to data from Thomson Reuters, the published value of proposed mergers and acquisition deals globally has totalled $2.5 trillion this year, beating the previous high of $2.3 trillion in the same period in 2007, the year before the global financial crisis. This is also 64% higher than 2017.

The biggest boost has come from the media industry, which has reported a value of $322.5 billion. In Europe, which contributed to close to $0.8 trillion to the market, next only to the US, three out of the eight biggest M&A deals this year take place in the media industry: Comcast’s and Walt Disney’s acquisition of Sky, with a combined value of $65.6 billion, and Vodafone’s $21.8 billion acquisition of Unitymedia GmbH.

One driver behind the vibrant media (as well as telecom and technology in general) M&A market is the fast technology progress, in particular internet and cloud-based services. “Businesses that take a ‘cloud first’ approach are often able to achieve fast organic growth, which puts them in a strong position for acquisition, either of a company or by another company,” said Paul Landsman, Investment Director at Livingbridge.

The business dynamics of industry are also in constant change, even the definition of what qualifies as media companies. The US federal judge has recently given green light to AT&T’s $85.4 billion acquisition of Time Warner, dismissing the government’s argument that the deal would be anti-competitive. This is largely down to the fact that more consumers are “cutting the cord” and switch to services like Netflix and Amazon.

This has brought about a change in the business relations between telecom companies like AT&T and content providers like Netflix. While in the past the content companies would pay telcos to transport the content, through its vertical integration, AT&T itself is becoming a media company competing with most likely its biggest client. Netflix is taking up 20% of the world’s downlink bandwidth. And this is calculated when it is not even operating in China.

Consequently, a new kind of question is being asked of the regulators. While the cable networks are losing their grip on viewers, hence the lack of concern for monopoly of the future AT&T / Time Warner combination, the Internet is increasingly being dominated by the so-called FAANG (Facebook, Amazon, Apple, Netflix, Google).

The financial capacity of these giants dwarfs any conventional media company. Netflix is planning to increase $3-4 billion investment in original content next year, on top of its already jaw-dropping $12-13 billion this year. The incremental amount is already bigger than the BBC’s total programming budget, according to a recent analysis of the company done by The Economist. The regulators need to consider how to protect the consumers that cannot or are not willing to subscribe to the premium over-the-top (OTT) services.

This is further complicated by the issue of net neutrality, or the lack of it. In markets where there is no legal requirement for net neutrality, regulators may have a hard time guaranteeing consumers receiving basic services from telcos who have a conflict of interest in transporting all media content including that of its own.

Though there is no sign of market cooling down yet, factors outside of the financial market may play some critical roles in the future M&A decisions. The on and off and on again US sanction against ZTE (and implied investigation of Huawei), and China’s drawn-out process to approve Qualcomm’s proposed acquisition of chipmaker NXP Semiconductor are the most recent and most obvious examples. They may lead potential acquirers and targets to be more cautious when it comes to companies with significant business interests in sensitive markets.

  • TV Connect MENA


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