There has been a steep rise in merger and acquisition activity in 2015 specifically in technology and telecommunication sector. According to analysts, almost $406 billion were spent on deals in buying technology and telecom companies globally by May 2015. These M&A deals are reflecting the underlying focus of the companies on the digital economy which consists of cloud, mobile data, analytics, e-commerce, social, security and payments. Volume and value of technology focussed M&A deals is continuously increasing year-on-year. According to a study by Oxford, emerging economies, such as Brazil, India and China could see a GDP uplift between $97 billion and $418 billion due to digital technologies. Some of the motives behind these M&As could be:
Gain a leadership position: Several mergers and acquisitions are also happening to gain a leadership position and to increase the coverage in key areas. Charter Communication will buy Time Warner Cable for $55 billion and hence would serve nearly 23 million residential and business Internet customers which will challenge the market leader Comcast having 27 million customers. Cross-border deal between Liberty Global and Vodafone in the UK and Germany has the potential to increase market share of each of the players in their respective markets. Similarly, series of acquisitions by Flipkart and Snapdeal in India indicate their intention to consolidate their position in the digital commerce market and to boost their capabilities through appropriate technology and talent.
Venturing into wireless data business: The growth of data services and success of wireless devices have attracted new entrants in the market. The basic wireless subscription is getting saturated and customers are demanding more innovative services like live streaming TVs and videos. Dish Network bought another 10MHz spectrum for $13.3 billion in the US auction taking its total spectrum holding to 56 MHz. However, it has not built the infrastructure to use this expensive spectrum. The proposed merger of Dish network and T-Mobile can provide a good platform for Dish Network to utilise the unused spectrum and provide a good platform for T-Mobile to improve its service offerings by using Dish’s spectrum to expand coverage as well as capacity and provide innovative services, thus helping in greater customer acquisition.
Exit strategy and increased scale: The high profile M&As in Europe and US market are also enabling exit strategies for other players. The potential T-Mobile and Dish Network merger could be opportunity for Deutsche Telekom, who owns 66% of T-Mobile in US, to exit the American market and acquire share in other lucrative European markets. Similarly, potential mergers between Reliance Communication & Sistema and between Airtel & Augere Wireless Broadband would help broaden 4G coverage in India for Airtel and Reliance.
Expansion into new geography: Saturation in US and Europe is encouraging companies to venture into new geography. America Movil, owning about 80% of landline market and 70% of mobile market in Mexico, is considering acquiring stakes in Indian operator. The stiff challenge in domestic market and the growing demand of wireless and data services in India which is the 2nd largest telecom market in the world are the reasons behind the geographical expansion. Similarly, global giants like Alibaba and Softbank are eying the Indian digital commerce market for expansion.
Cross-border consolidations: Altice, the French telecom company with significant presence in Europe acquired Suddenlink Communications, the seventh largest US cable TV company. This will help cross-border consolidation between the US and Europe.
In view of above M&A activities, it is clear that digital services are driving the companies to go for mergers or acquisitions to fill the technology gap and talent expansion. Although growth in data is the major factor, there are other factors like low interest rate, decline in oil prices, dollar appreciation and pressure from investors to focus on top-line growth. The future M&A deals would reflect similar trends of digital phenomenon to deliver real gains in productivity and revenue.
