Middle East And Africa Core Areas For TMT Transactions By 2013

Published June 14th, 2010 - 10:42 GMT

Following a dry spell of M&A activity in 2009, the Middle East and Africa are core areas for Technology, Media, Telecommunications (TMT) transactions in the next three years, with assets worth between US$25bn-US$30bn being considered for sale in the region, according to Value Partners, a leading global management consultancy firm.

"The availability of attractive targets is due to market consolidation and government privatisation programmes, combined with the presence of buyers with cash-rich balance sheets. This is conducive to a new phase of M&A, but with more well-defined strategic objectives and more prudent investment principles," said Zoran Vasiljev, Managing Director, Value Partners Dubai.

According to research by Value Partners to understand the region's M&A trends over the next few years, the next stage of market development is to consolidate gains by leveraging synergies and achieving operational efficiency. New trends in M&A activities are emerging, with a focus on making strategic acquisitions and leveraging them to achieve synergies and develop capabilities.

"The sought-after diversification of revenues has not been achieved, as home markets still constitute the largest source of revenue. Telecom groups in the region have ownership in a relatively large number of operations, but the revenue contribution of these operations is significantly smaller than that of their global counterparts. Also, cost and revenue synergies have not been exploited, partly due to the large number of acquisitions in a short period of time and the diversity of the target markets," explains Vasiljev.

In addition to defining the right footprint, Value Partners expects that the next wave of acquisitions will aim to grow capabilities in other revenue-generating services. Hence, another focus will be on acquiring capabilities in technology, content, and innovation. Further activity is expected as IPTV technology matures in the region, and popular platforms emerge.

"The acquisition of media content providers and producers has been limited, understandably, in light of the low uptake of IPTV and mobile TV in the region. This trend may change if regional operators develop a business model capable of achieving the critical mass required for amortising the cost of content production and sports rights," explains Vasiljev.

Value Partners claim that while acquisitions used to be part of aggressive expansion plans in the region, the current phase of consolidating gains and streamlining operations will be more focused on either making acquisitions of a strategic importance, or on the opportunistic acquisition of assets as a medium- to long-term investment vehicle.

Possible strategic objectives for acquisition include: the diversification and growth of revenues, setting up a regional "single network" operation, leveraging regional critical mass to set up content creation activities, or acquiring an operation from which significant knowledge transfer can be achieved.

"We advise that opportunistic investment acquisitions should be developed with a clear timeline for investment, and a clear target price for exiting, with acquisition activity driven by top-level corporate strategy, setting both growth plans and prudent investment principles," added Vasiljev.

Value Partners' research show synergies have traditionally been difficult to capture in the region, for human and technical reasons: Differences in company culture, an overly optimistic assessment of synergies, and leadership struggles are common human causes.

Value Partners have identified that priority initiatives that can take place at the group level for effective synergies include: Network optimization and energy saving initiatives, setting up a list for global preferred vendors that scale discounts to all subsidiaries, common IT platforms and group-level IT governance guidelines, and common belling systems.

Huge potential bottom-line savings can be achieved in the short term by simply setting up the proper group-level organisation necessary to identify and establish group-level best practices across the different disciplines. "Technical problems lie in the complexity of setting up common platforms due to legacy systems and skill sets available within the organisation. To counterbalance these effects, corporations can set up group-level working teams, with the leadership of empowered programme managers and the participation of their counterparts in local subsidiaries," continued Vasiljev.

Value Partners' analysis revels that there are plenty of opportunities in the region to develop Internet content platforms, and monetise local media content. "The commoditisation of access services and the gradual increase in user and device sophistication opens an opportunity for leveraging the untapped VAS revenue stream. Further horizontal diversification opportunities in sectors such as banking and utilities are yet to be explored in the region, as the operators develop and test the delivery model of these services," added Vasiljev. 

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