Asia–Pacific is seeing a reawakening of M&A activities in telecoms, media and technology (TMT). Previous transactions that stalled during the financial crisis are likely to resume, and new opportunities are arising as a result of new technology and market developments (as illustrated in Figure 1 – click on the image for an enlarged version).
Figure 1: Assessment of opportunities in Asia–Pacific by sector [Source: Analysys Mason]
We see a number of key trends relating to M&A activity in the TMT space:
- increasing convergence across mobile and media
- integration and divestment of players across the value chain
- consolidation in fragmented markets
- tower portfolio divestment and consolidation
- restructuring plays in Hong Kong.
Convergence across mobile and media had previously seemed a distant dream, but now appears much more likely to happen. Mobile operators in the region are getting into the broadband and media game. As a result, any second telecoms player will want, or need, to have a presence in broadband and media. KDDI, Taiwan Mobile, SKT, Maxis and Indosat are just some examples of players that are expanding their activities in this way. New products and services such as wireless broadband, IPTV and mobile TV are gaining some credibility among users, and take-up is increasing. As a result, operators that do not have a convergent offering or infrastructure are increasingly finding themselves at a disadvantage and so will need to make acquisitions.
Players are adopting increasingly polarised approaches to the value chain. Some players prefer to focus on their core competency by providing services rather than deploying networks. For this reason, they are divesting their tower activities and outsourcing the network. In contrast, other players are beginning to establish integrated operations that span the whole value chain (for example, by acquiring ICT system integrators and even banks, to serve enterprises and consumers respectively). In pay TV, some broadcasters are extending their activities upstream (e.g. by buying into content production) and downstream (e.g. by acquiring set-top box manufacturers).
Consolidation of fragmented markets is a development that we believe is likely to occur. For example, a three-player mobile market appears to be the most sustainable in the long run. Despite more than a decade of competition in most markets, the bulk of mobile subscribers and revenues belong to the top three players. The fourth player in most markets has either struggled or has margins that are significantly lower than those of the third player. The valuation gap between potential buyers and sellers has been narrowing, and this could well lead to consolidation in the more fragmented Asia–Pacific markets (including India, Indonesia and Pakistan).
Pay TV is another market where consolidation could occur. With the increasing deployment of IPTV and stronger enforcement of anti-piracy measures, smaller pay-TV broadcasters (some of which may currently be pirate broadcasters) will need to increase their scale in order to compete effectively, particularly since the cost of content could be quite prohibitive. We expect that markets such as Thailand, Indonesia, India and South Korea will see some consolidation activity in the pay-TV sector within the next few quarters.
The towers market will only grow if data traffic increases and new technologies are deployed. Evidence of increasing activity in this area can be seen in India, where three tower transactions were announced between January and February 2010 alone. In Indonesia, there are plans to allow foreign investment into towers infrastructure. As a result, Telkom has ambitious plans to spin off the towers in Telkomsel and Telkom to a separate business unit and potentially to acquire the towers business of its competitor Indosat.
Finally, Hong Kong stands out as an interesting source of buyout opportunities. For example, companies such as TVB and PCCW are fundamentally sound and could find their businesses rejuvenated by the involvement of a new investor.
Analysys Mason has extensive expertise in identifying and evaluating investment and financing opportunities within the TMT sector. During the last decade, our consultants have gained in-depth experience of working with operators, broadcasters and vendors in the region, to understand their market opportunities and challenges, and operational issues. We have in-house technical consultants whose knowledge of the underlying technologies is second to none. Last, but not least, we understand the needs of clients, having worked extensively with financial institutions on investments in the Asia–Pacific region ranging in value from USD10 million to USD1 billion. We have been involved in one capacity or another in many of the major transactions that have occurred during the past few years.