Finance

European Deal Market Goes Mobile

Continental Players Consolidate in Quadruple-Play Quest 1/19/2015 8:00 AM Eastern
TakeAway

A flurry of activity in the wireless space made 2014 Europe’s strongest year for M&A activity since 2008.

Mergers and acquisitions, fueled by a drive to consolidate mobile communications operators, surged in 2014 in Europe, as big and small names vied to capture the last leg in a quadruple play offering for consumers.

 

Total deal volume in Europe last year was about $901.4 billion, up 40.5% from $641.4 billion in the prior year, according to Mergermarket. It was the highest value since 2008, the company said.

 

Dominating the sector were deals involving telecommunications companies. Telecom, Media and Technology deals accounted for about $168.2 billion in volume in 2014, up 24% from the prior year and representing the largest sector in terms of M&A.

 

While mobile aspirations fueled European deal-making, consolidation and the search for scale economics were the sparks that sent transactions in the United States to record highs. Led by Comcast’s pending deal to acquire Time Warner Cable (which Mergermarket valued at $68.5 billion but Comcast places at more like $67 billion) and AT&T’s $66 billion purchase of No. 1 satellite-TV service provider DirecTV, U.S. TMT deals were worth a collective $302.2 billion, up 24% from 2013, when total deal value was about $284.9 billion.

 

U.K. DEAL LEADS PACK

Leading the European TMT charge was BT’s (formerly British Telecom) $18.8 billion acquisition of mobile carrier EE (formerly Everything, Everywhere). The acquisition was seen by many as an effort by BT, already the largest telephone carrier in Britain, to further solidify its wireless position in the country.

 

In its report, Mergermarket said ongoing consolidation in the telecom industry helped the TMT sector account for the biggest chunk of M&A activity.

 

“One of the trends currently shaping the sector is the convergence toward the ‘quad’ model, with operators bundling together Internet, TV, landline and mobile services,” Mergermarket said.

 

Pivotal Research Group principal and senior media & communications analyst Jeff Wlodarczak said recently that consolidation in the European telecom sector is well underway, adding that competition in the sector is “brutal.”

 

“The European wireless [companies] would love to consolidate,” Wlodarczak said in a recent email message. That was obvious in the top five deals in the sector, three of which were mobile-capacity plays — BT’s; Numericable’s $15.9 billion buy of Vivendi SFR; and Spanish carrier Telefonica’s $11.6 billion purchase of E-plus.

 

Even the non-mobile deals had a quad play feel to them. European wireless behemoth Vodafone, flush with the $130 billion it received from its sale of its 45% interest in Verizon Wireless back to the U.S.-based carrier, continued its quest to snap up cable properties, agreeing last March to buy Spain’s Ono for about $10 billion. That deal built on Vodafone’s other big cable buy — German cable giant Kabel Deutschland in 2013 for $10.1 billion.

 

German cable has been a hotbed of M&A activity over the past few years, and another player could enter the deal fray later this year. Tele-Columbus, the third largest German cable operator, behind Kabel Deutschland and Liberty Global, is slated to launch an initial public offering in the next month or so, raising about $300 million to pay debt.

 

Tele-Columbus, which has been an acquisition target in the past — its 2013 deal to be acquired by Kabel Deutschland was rejected by regulators — has said it is not pursuing a sale in line with the IPO. Whether that means it will be an acquirer remains to be seen. It has said the IPO will help fuel its growth strategy as well as pay down debt. But already the company has said it is planning to offer its own mobile service later this year.

 

LIBERTY LOOKS FOR CONTENT

Liberty Global made a widely anticipated play for the remaining interest in Dutch cable operator Ziggo for $13.7 billion. But the Denver-based international cable powerhouse has been said to be on the hunt for programming and production assets (it purchased U.K. producer All3Media for $930 million in a joint deal with Discovery Communications last year) even as it sold programmer Chellomedia to AMC Networks for about $1 billion.

 

At a recent industry conference, Liberty Global CEO Mike Fries said any content deals the company engages in are a means to one end — driving distribution.

 

It’s been speculated that is Liberty eyeing German over-the-top service Maxdome, and in March it announced plans to launch its own wireless product in partnership with other carriers (so-called mobile virtual network operators, or MVNOs) that should help give it a quad play. Outside the continent, Liberty is gearing up to launch a tracking stock, Liberty Latin America and Caribbean Group, which could serve as a deal currency in that part of the world.

 

Wlodarczak said recently that he expects Liberty Global to continue to seek out deals in what he sees as a still favorable regulatory climate.

 

“I still see lots of little deals for [Liberty Global] and the euro regulators seem to be keeping deal approval at the EU [European Union] level, which as we saw with the Ziggo deal, is beneficial if LGI wants to, say, buy more cable assets in Germany, rather than the local level which tends to be far more difficult,” Wlodarczak said.

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