Public telco M&A deals grow by 48% in 2021, finds Bain & Co
Global management consulting firm Bain & Company has published its 2022 Global M&A report which found that telecoms M&A experienced a dramatic rebound during 2021.
The report found that the average value of public M&A deals during this period increased by 48% as well as "record-high multiples reported across most subsectors". Further, 56% of transactions were either in-country consolidations or infrastructure deals. This is in comparison to the decline in early 2020 caused by the economic uncertainty of the Covid-19.
“The shift from ‘traditional’ telecom M&A—consolidating markets and expanding portfolios—to infrastructure deals and Private Equity divestments has accelerated overall deal value," said to Alex Dahlke, partner in Bain & Company’s telecoms practice.
Private investments grew by 100%, with private investment multiples rising faster than public trading multiples. Private investment momentum is expected to continue as long as private telecoms valuations stay 'significantly' higher than listed telecoms valuations.
Further results show that with the growing number of high valuations, companies are devising new ways to structure joint ventures. These include scale deals in which no company wants to relinquish control or by consolidating networks while still retaining their independence at the retail level.
“The increased level of M&A is driving, first and foremost, a stronger delayering of the telecom industry into infrastructure operators, service providers, technology platform providers, and segment-focused specialists,” added Dahlke.
Specifically, scale deals, such as in-country consolidation, continued to make up the bulk of telecom M&A for the period.
While Infrastructure M&A, particularly in tower and fibre assets, soared as companies and private investors continue to enter the infra market. Multiples for infrastructure transactions increased 18 times in 2021, up from an average of 14 times in 2020. In comparison, multiples for integrated operator acquisitions averaged 9 times.
Private investments were maintained by the growing interest in telecoms across all deal types. Drive by higher transaction multiples for private transactions than public, the total value of their investments in the industry reached $79 billion in 2021 up from $39 billion in 2020, and constitutes 29% to 39% of total deal value, up from around 5% prior to 2019.
Looking ahead to 2022, scale deals are predicted to continue in the 'still fragmented and less strictly regulated markets' of Latin America and Asia-Pacific and potentially re-emerge in Europe, depending on regulatory changes.
Mobile/fixed-mobile consolidations is expected to gradually decline in Europe, where companies have already taken advantage of most opportunities. One new area of scale acquisitions is in maturing fibre alternative network assets as there is likely to more increased activity in the horizontal and vertical integrations of newly created fibre-to-the-home alternative network and joint ventures.
"We think some of the structural drivers like the public/private valuation differential, the low cost of capital funds available, and asset availability will exist for the next five years and drive heightened Telecom M&A activity," said Dahlke.