The prospects for telecom mergers and acquisitions are generally strong — with a few caveats. That was the key takeaway from a panel of telecom investors at the Connect(X) event in Chicago this week.
Indeed, the title of the panel was “Are You Ready for the ‘Year of M&A’ in Telecom?”
“Transactions are up,” said Scott Soden, managing partner at Alpina Capital.
Freedom3 Capital is “pretty active,” said Aaron Blazer, principal with the investment firm, which is looking at a wide range of what Blazer called “bolt on” acquisitions.
Although he didn’t define that term, it apparently refers to deals in which one company buys a smaller company that can easily be added to expand its existing business.
Blazer noted that he sees some companies that are “starving for capital” and are having difficulties executing on their plans, adding that “We see an opportunity to take advantage and scale up our existing portfolio companies.”
Bora Goekbora, a partner with Boston Consulting Group, noted that he has seen some slowdown in M&A involving privately owned companies with “hard assets.” He added, though, that he has seen a lot of focus on the broader ecosystem, including companies involved in software or structured engineering.
What are telecom investors looking for as they pursue acquisitions?
“Acquirers are looking to get subscribers,” said Soden.
Blazer echoed those comments. “Those companies that get fiber in the ground and [obtain] customers faster are the really good performers.”
Goekbora added that providers are interested in acquiring companies with complementary footprints, enabling them to quickly build scale.
Other Telecom Investor Trends
Panelists participating in the Connect(X) M&A session, noted that the U.S. still has hundreds of smaller providers. Blazer sees an opportunity for an investment firm that is willing to do the hard work to consolidate some of those small companies. He speculated that a company such as T-Mobile wouldn’t want to buy 100,000 or fewer passings at a time but instead would prefer that someone else act as the first-layer consolidator.
Blazer also noted that 2020 and 2021 were big years for financial firms to invest in telecom. Some of those deals will be coming up for refinancing and at that point, he predicted that lenders “will become aggressive” and may take control of some of their portfolio companies.
Finally, Blazer noted that some companies that have historically been telecom lenders are getting out of that business.
Fortunately, private equity firms may be stepping in to fill that void. A recent Deloitte report estimated that private equity firms have raised $300 billion to invest in telecom.
