Acquisitions ahead

Operators are placing greater emphasis on strategy as the sector braces for further consolidation.

Tags: Frost & Sullivan (www.frost.com)Mergers and acquisitionsValue Partners Middle East
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Acquisitions ahead
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By  Roger Field Published  July 5, 2010

The years running up to the financial crisis of 2008 were marked by some frenzied deal making in the Middle East telecoms sector, with many of the region’s incumbent operators bidding huge sums for foreign licences and stakes in other telecom operators.

Kuwait was just one example of a relatively small country that attracted disproportionately large bids from operators, with STC paying $900 million for a 26% stake in Kuwait’s third mobile operator in 2008, while Zain and its partners paid $6.1 billion for the the second mobile licence in Saudi Arabia the previous year.

But with the onset of the financial crisis in 2008, the region’s telecom sector retreated into a more bearish phase, with most of the operators concentrating on developing their existing assets.

The lull in deals experienced throughout 2009 came to an end as Zain, one of the region’s previous champions of M&A, decided to sell off most of its African assets.

And with India’s biggest mobile operator, Bharti Airtel, having completed its acquisition of most of Zain’s African assets last month, and with numerous M&A talks and deal rumours being reported, M&A is firmly back on the agenda.

The trend was also noted by delegates at the Arab Advisors’ Convergence Conference in Jordan last month, with a number of CEOs from the region’s telecoms sector predicting further consolidation in the telecom sector.

However, this new round of M&A appears to differ significantly to the pre-2008 deals. This time, not only are prices lower, but proposed deals also appear to driven by more clearly defined strategies.

Zoran Vasiljev, a partner at Dubai based consultancy Value Partners, believes further consolidation in the sector will be markedly different from past deals.

“The pure land grabbing type mentality of just planting flags around the world is over because we haven’t seen much in the way of results or shareholder value being created by that type of approach,” he said.

He added that the economic downturn had given many of the most acquisitive telcos time to re-think their strategies and also to assess the merits of the acquisitions they had made and to consider why some operations had struggled to generate income.

“These realisations in some of the groups have come through, and probably the maturity of the management at the group level has also evolved. We can see these trends emerging, which should be good news for the shareholders of all these companies,” Vasiljev added.

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