m&a opportunities for telcos - analysys masona activities in the tmt sector have slowed in 2016...
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Hong Kong telecoms summit 2016
© Analysys Mason Limited 2016
Hong Kong Telecoms Summit
M&A OPPORTUNITIES FOR TELCOS
TAYLOR LAM
JULY 2016
Strategy Consulting
Hong Kong telecoms summit 2016
© Analysys Mason Limited 2016
CONTENTS A SLOWDOWN FROM RECENT FRENZIES: OPPORTUNITIES FOR TELCOS?
TELCO M&A HOTSPOTS: ENTERPRISE ICT AND CONSUMER DIGITAL
CONSIDERATIONS FOR M&A IN NEW FRONTIERS
KEY TAKEAWAYS
2
Hong Kong telecoms summit 2016
© Analysys Mason Limited 2016
M&A activities in the TMT sector have slowed in 2016 – is it time for strategic investors to step in?
185 176 153
254 223 260
153
45
60
34
4473
7677
8594
81
100 161137
224
423
20
172172
500
600
800
300
0
100
200
700
400
14
51
Q1 2016
Tota
l val
ue o
f dea
ls (U
SD b
illio
n)
511 525
768
307
2008
286
2007
501
85
222
315 333
2014 2015
123
2009
81
2010 2013
102
2011 2012
Asia-Pac
Media Telecoms
Technology
Global value of disclosed deals in the TMT industry
Source: MergerMarket
3
Hong Kong telecoms summit 2016
© Analysys Mason Limited 2016
CONTENTS A SLOWDOWN FROM RECENT FRENZIES: OPPORTUNITIES FOR TELCOS?
TELCO M&A HOTSPOTS: ENTERPRISE ICT AND CONSUMER DIGITAL
CONSIDERATIONS FOR M&A IN NEW FRONTIERS
KEY TAKEAWAYS
Hong Kong telecoms summit 2016
© Analysys Mason Limited 2016
Telcos’ recent M&A has moved beyond core business expansion to include the enterprise ICT space and digital consumer services
5
M&A
obj
ectiv
es
Core business
expansion
Business expansion
to adjacent areas
Participate in
disruptive business
Geographic focus M&A priorities
Local Regional / Global
Offer and/or geographical expansion
Financial impact not always immediate, but will provide a clear M&A story
Main M&A focus for telcos
Multiple domains possible, although success tend to require focus on a small number of domains
Mostly in the form of venture investments
BAU evaluations
Market consolidation is the prime driver
Enterprise ICT Cloud, mobility, and data centre shifts IT
budget “online”
Consumer digital Telcos are more than just a pipe in the
digital world
Source: Analysys Mason
5
Hong Kong telecoms summit 2016
© Analysys Mason Limited 2016
Enterprise ICT has proven to be a growth driver for many successful operators
PCCW / HKT Telstra SK Telecom
Source: Analysys Mason
6
Hong Kong telecoms summit 2016
© Analysys Mason Limited 2016
Hosting, cloud and IoT represent the most significant opportunities for operator expansion beyond connectivity service offerings
Figure: Enterprise spend in 2020, and market growth
Connectivity services
Established, non-
connectivity services
Emerging services
1 Mobility services include mobile voice, data and related applications, such as mobile device management (MDM). By 2020, the splits of revenue will be as follows: voice 36%; data 60%; MDM 4%.
Mobility services1
Data networking services
Cloud services
Fixed voice
Analytics
UC
Fixed broadband
IT services IT outsourcing
Security
IoT
-5%
0%
5%
10%
15%
20%
25%
- 50 100 150 200 Enterprise spend in 2020 (USD billion)
Cloud services and IoT are the two key areas
for telcos, with substantial and fast-
growing markets.
Hosting
Key
2016
-202
0 CA
GR (%
)
Source: Analysys Mason
7
Hong Kong telecoms summit 2016
© Analysys Mason Limited 2016
Network Operators
Prod
uct/
te
chno
logy
as
sets
M&A
ratio
nale
Entity type
Acquisition objectives vary, and are dependent on the expansion “phase” of the acquirer
8
M&A cases Infrastructure Applications / Integration
Capa
bilit
ies /
sk
ills
Cust
omer
s
Location: USA Value: USD525m Target: Enterprise networking
Value: USD1.7bn EV/EBITDA: 2.8x EV/revenue: 0.5x Target: Subsea cable assets
Location: USA Value: USD350m (80%) EV/EBITDA:~10x Target: Data Centre
Location: Central and Eastern Europe Value: USD730m EV/EBITDA:6.3x Target: Data Centre Location: France
Value: USD11.5m Target: Fleet management
Location: USA Value: USD216m EV/EBITDA: 65.6x EV/Revenue: 3.9x Target: Managed security services
Source: Analysys Mason
Hong Kong telecoms summit 2016
© Analysys Mason Limited 2016
VoIP
Messaging
Video call
Video
Music
Games
Publishing
Digital Ads E commerce M-payment Mass SN
Niche SN
Transport
Travel
Weather
News
M-Edu
…
Comms Media / Content Ads Consumer
IoT Payment / Finance
Social Network
Market place /Agents
Info /Lifestyle
Education Commerce
Mainstream “Telco” digital services Other digital services
Revenues driven by digital advertising or direct subscription / usage fees
•Evolution from Telco convergence
•Relatively familiar territories
•Complex B2B value chain where Telcos can leverage key assets
•Diverse business models and profitability profile
•Highly fragmented, with less scope for Telcos to leverage key assets
•Business models are diverse and constantly evolving
The digital age has brought about new revenue domains where telcos compete against tech companies
Wearables
Smart home
Connected cars
…
M commerce Micro-
finance
Source: Analysys Mason
9
Hong Kong telecoms summit 2016
© Analysys Mason Limited 2016
Major telecoms operators are focusing on ‘new’ key domains such as ecommerce, digital video, digital marketing and mobile finance
Digital marketing Mobile Finance
Mobile advertising
(2012)
Mobile adtech: Real-time bidding
(2013)
Mobile adtech: Interactive 3D
ads (2012)
Cross channel digital ads
(2014)
Digital content analysis platform
(2014)
International Remittance
(2016)
Commercial Microfinanace (2008, 2016)
Banking and insurance
(2014)
Mobile advertising (JV with Dentsu)
Mobile advertising
(2012)
Mobile ad solutions (2013)
Mobile marketing: JV with Affle
(2014)
Mobile Apps Developer
(2013)
Mobile payment solutions (2009)
Ecommerce & payment solutions
(2013)
Digital wallet & payment solutions
(2015)
Ecommerce & payment solutions
(2011)
Source: Analysys Mason
10
Hong Kong telecoms summit 2016
© Analysys Mason Limited 2016
Major telecoms operators are focusing on ‘new’ key domains such as ecommerce, digital video, digital marketing and mobile finance
Mobile Video & Media (2014) Runs Ecommerce
platforms in 50 countries
Online classified website
Ecommerce & payment solutions
(2013)
Online fashion retailer (2013)
Ecommerce services (2009)
Online music retailer (2005
& 2012)
Online auction: JV with Rakutan
(2005)
Ecommerce Digital video
Video content mgmt &
distribution (2014)
Video searching software (2015)
Software Video Solutions (2014)
OTT Video Streaming
(2014)
Interactive Video Logistics Platform
(2015)
Home shopping and Ecommerce
Source: Analysys Mason
11
Hong Kong telecoms summit 2016
© Analysys Mason Limited 2016
Consumer digital services: strategic engagement models vary by operator, and venturing has delivered results
12
Gain greater visibility of innovation in the Internet
domain
Increase revenue and profits of
core telco business
Create new revenue streams to complement telco business
Business objectives: The ‘why’ for digital services
Execution Intensity: The how for digital services
Create ‘internet valuation’
businesses for spin-offs
Networking / market
scanning
Venture / seed capital investment
Incubation support
Shared risk investment partnership
Own build / investment
Source: Analysys Mason
Hong Kong telecoms summit 2016
© Analysys Mason Limited 2016
CONTENTS A SLOWDOWN FROM RECENT FRENZIES: OPPORTUNITIES FOR TELCOS?
TELCO M&A HOTSPOTS: ENTERPRISE ICT AND CONSUMER DIGITAL
CONSIDERATIONS FOR M&A IN NEW FRONTIERS
KEY TAKEAWAYS
13
Hong Kong telecoms summit 2016
© Analysys Mason Limited 2016
M&A in new frontiers requires different preparation and a different mindset than core business M&A
14
Post-deal
Pre-deal preparation
1
• Select a few domains to focus on, and build a strategy or story around them
• Be prepared for multiple acquisitions – and the order of the acquisitions
• When scanning the market, allow for multiple paths to reach the same broad goals.
• Integration is not always best, especially for new initiatives
• Establish further partnerships to strengthen acquisitions
• Be prepared to divest when the price and timing is right.
Due diligence
2
• Fundamentals-based valuations; do not rely on multiples
• Beware of substitutes in the market as source of risks and alternatives
• Be aware of competitive bid landscape, bidders (for example, telcos, tech companies, PEs, VCs) have different motivations and sources of synergies.
3
14
Hong Kong telecoms summit 2016
© Analysys Mason Limited 2016
CONTENTS A SLOWDOWN FROM RECENT FRENZIES: OPPORTUNITIES FOR TELCOS?
TELCO M&A HOTSPOTS: ENTERPRISE ICT AND CONSUMER DIGITAL
CONSIDERATIONS FOR M&A IN NEW FRONTIERS
KEY TAKEAWAYS
Hong Kong telecoms summit 2016
© Analysys Mason Limited 2016 16
Key Takeaways
1 Enterprise ICT provides a solid growth area for telcos. Cloud, IoT and data centres are the prime drivers, but acquisitions should be consistent with a strategy that expands wallet share / breaking into enterprise customers’ ICT spend, by geographies.
2 Digital consumer services provide opportunities for fast growth business. Focus on a small set of domains, and be prepared to make multiple acquisitions to build scale in these fast expanding markets. Execution approaches could range from pure investment to buy-and-build of an entirely new business.
3 A different mindset / preparation from traditional M&A is required. Focused, but flexible, underlying strategy is needed, given that the M&A space is much more complex in these domains.
Hong Kong telecoms summit 2016
© Analysys Mason Limited 2016
Contact details
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https://hk.linkedin.com/in/taylor-lam-5300b120
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Hong Kong telecoms summit 2016
© Analysys Mason Limited 2016
Consulting from Analysys Mason
18
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Hong Kong telecoms summit 2016
© Analysys Mason Limited 2016
Research from Analysys Mason
19
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