The telecoms market has witnessed a sizable proliferation in mergers and acquisitions over the last couple of years. The acquisition of BE by O2, and Cable and Wirelesses’ buy out of Bulldog remain the most prominent in my mind. But among others we’ve also seen big players like Tiscali and Easynet be bought out by Carphone Warehouse and Sky respectively, while Chess and Daisy have both embarked on aggressive acquisition strategies. Naturally, the financial crisis has provided fertile ground for such activity – with depreciated assets and estates proving attractive to those looking to strengthen their market position.
Despite the perceived benefits, mergers and acquisitions often bring with them a large number of challenges to overcome. Statistically, in more than 50 per cent of cases, managers perceive value destruction and failure to recover costs (PWC survey 1998) and 43 per cent of international acquisitions fail to produce return at least equal to that of the acquirers cost of capital (McKinsey).
The transition period tends to be the most difficult to negotiate. This period is characterised by uncertainly and it’s not unusual to witness breakdowns in interdepartmental communications, departures of key personal and a loss in customer confidence during this time. Successful consolidation of various billing, provisioning and CRM platforms is fundamental to ensuring efficient administrative and operational functioning, but can be an inherently difficult task to undertake, particularly with large M&As or those in which there is diversity between product offerings or sizable geographic and or psychological distance.
Although not all M&As in the telecommunication industry have proved successful, our industry is fortunate in that demand is more obvious than in others and supply and demand are also intrinsically linked. We do not have the fluctuations that others face which allows for smooth but also very safe horizontal type of M&A, simply because of the reason that the corporations going for M&A are operating not only in the same industry, but often with the same set of products Issa Asad.
With this taken into account, and the potential for any acquiring company to reduce expenses and achieve greater market share and control in the industry, we’ll no doubt witness more M&As in the upcoming months.