Middle East telecom operators to pursue a new wave of M&As in search for growth and expansion

Monday 04 December 2017
Charly Nakhoul
Dubai - MENA Herald:

The MENA telecom industry is currently pursuing significant growth and expansion within the promising Information and Communications Technologies (ICT) sector, most probably through Mergers and Acquisitions (M&As) to fill their capability gaps.

According to a recent study by global management consulting firm Strategy& (formerly Booz & Company), part of the PwC network, global telecom operators have moved away gradually from the pursuit of growth to expanding into emerging digital domains and new vertical markets, through M&As.

In 2015 and 2016 combined, global telecom M&A transactions amounted to 884 deals, valued at almost $200 billion. Expansion into adjacencies increased sharply in 2015 and 2016, with a total of 213 deals valued at $14 billion during these two years, versus 184 deals valued at $5.1 billion during 2013 and 2014.

Chady Smayra, partner with Strategy& Middle East, said: “Scale will remain important for the telecom industry and will continue to fuel consolidation as correlation between profit margins and revenue share have become much closer. However, digital is blurring traditional industry boundaries, allowing tech giants such as Apple and Alphabet to relentlessly expand”.

“Not only do they pay little attention to barriers to entry, but have strong digital foundations to launch products and services across various industries. This should serve as an example to all telecom operators and motivate them to advance into the digital arena and become digital conglomerates”, he added.

However, in MENA region M&A activity has been shy with the region representing a mere 1 percent during 2015-2016., However, the latter trend is expected to change.

Amr Goussous, partner with Strategy& Middle East said: “The shift towards expanding into related businesses has an end goal: telecom operators would like to ultimately position themselves as end-to-end ICT providers, specifically focusing on B2B solutions. The B2B and B2C ICT industry in the GCC is set to grow by 12 percent in the coming 3 years, to reach $14.3 billion in 2020. IT consulting, system integration, operations and software development will consist a large portion of the expenditure on ICT. Much of this growth will result from national economic and digital transformation plans, with opportunities for public-private partnerships.”

To take advantage of these opportunities, MENA telecom operators must urgently fill their capability gaps in advanced ICT and digital services, through M&As and joint ventures with nimble tech companies. Strategy& has outlined four key pillars for MENA telecom operators to reactivate their M&A agenda:

Charly Nakhoul, principal with Strategy& Middle East, concluded: “As cash-rich MENA telecom operators grow and are pushed into offering digital services, it is essential that they gain competitive advantage and stop perceiving deals as a stand-alone activity. Instead, they must understand that transactions in the digital domain are deeply intertwined with the corporate strategy of existing operations and rely on careful planning.”

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