Parting company

Operators can benefit from the disposal of non-core assets, but caution is vital

Tags: DLA PiperOliver Wyman Group
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Parting company Matt Glynn advises caution when planning to sell assets.
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By  Roger Field Published  August 8, 2010

While many analysts have been busy assessing the acquisition strategies of companies in the region’s telecoms sector, with Bharti Airtel’s acquisition of Zain’s African assets putting M&A firmly back in the spotlight, less attention is paid to the strategies being adopted by the sellers.

Yet many deals in the telecom sector are being driven by companies actively looking to dispose of assets, from entire operations to parts of their network infrastructure that are deemed to be non-core.

Matt Glynn, head of technology, media and communications at DLA Piper in Dubai, says that he is seeing an increase in operators looking to dispose of assets, particularly among companies that have achieved a level of regional scale.

“We are starting to see them come through for legal representation, while others are still at the stage where they are with their strategic management consultants, asking what is the way forward given what has occurred over the last couple of years,” he says.

For Maarten De Wit, a partner at the global strategy consultancy Oliver Wyman, the decision of different operators to dispose of assets may also hinge around the ownership structure of the company. He points out that government-backed companies, which generate returns for their country, are less likely to look to make disposals to improve the balance sheet in the short term, although he conceded that they still need to maintain a “healthy portfolio”.

“If you consider yourself to be an operator and in the business of operating telecoms networks then the incentive to sell is going to be reduced compared to the holding structure that thinks of itself almost as a private equity house that maintains or manages a portfolio of businesses which needs to generate specific profitability targets that the shareholders are looking for,” he says.

Glynn agrees that the ownership structure of the business also plays a part in influencing the decision to sell assets. He points out that while some people and organisations were “pouring money into telecoms over the last four or five years” some stakeholders started looking to exit when the global economy stalled.

Compulsion to sell

The rise in interest in disposals is partly due to operators taking a step back and assessing their performance over the past few years, and particularly the performance of assets that have been acquired in recent years, combined with the usual drivers of consolidation such as increased competition and falling ARPU.

With many of the region’s powerhouse operators expanding so rapidly in the past few years, the global economic crisis has led operators to question how successful their expansion strategies have been, according to Glynn.

“There is a sort of tallying up of a score card, and from a prospective seller point of view there are a number of drivers,” he says. “We have got the people who are looking to achieve opex and capex efficiency saying, ‘you know what, do we actually need this particular business division or core process?’”

This has probably been most obvious from the expansion of many operators into Africa, where it has proved difficult to generate strong profits. This, particularly when combined with the economic crisis, led operators to question their expansion strategies and consider selling assets, especially in cases where shareholders held influence, as Zain’s decision to sell most of its Africa assets to Bharti Airtel demonstrated.

But while it might be mega deals such as the Zain-Bharti deal that grab the headlines, operators throughout the region are also considering the merits of selling off divisions of their business such as network maintenance, allowing them to focus on their genuine core business of selling and marketing airtime.

“This is a clear trend, and we are going to see a lot more of it in the region, the parceling up of towers and offering them for sale,” Glynn says.

“I can’t think of a major operator that is not re-examining its portfolio and also making an assessment of what is strategic and what is not.

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