Value of future telecom mergers to increase despite fewer transactions

In a new report, Telecom Mergers and Acquisitions: Trends in a Consolidating Industry 1998-99, atlantic-acm, a Boston-based strategy consulting firm, analyzes transactions, including acquisitions and mergers in each telecommunications industry segment. The report reviews the industry in 1997 and early 1998, analyzing key transactions, accessing company strategies, and citing reasons for failed mergers.

Additionally, the report concludes that companies not aligning their strategic, operational, and financial strategies in a merger are less likely to succeed.

Some common factors leading to failed mergers include the common misconception that bigger companies are better; merger participants feeling compelled to follow the industry trend of seeking out partners; and, as some companies have experienced first-hand, making the mistake of having two managers run one company.

atlantic-acm believes telecommunications merger and acquisition activity has peaked, but that merger values will continue to rise even as the number of transactions falls through 2000 (see figure). After 250 mergers in 1997, the volume will decrease slightly through the next few years and drop sharply by the year 2000. This decline results from fewer industry competitors, as mergers and bankruptcies outpace the number of new entrants that will be facing steeper barriers to entry.

But even as transactions fall, the value of those transactions will increase as larger companies merge in expensive mega-deals. Factors driving up the industry transaction value include the entrance of regional Bell operating companies into long distance; international postal, telegraph, and telephone companies into the domestic market; and converging utility and cable companies into telecommunications.

The current merger environment throughout the industry will continue to encourage transactions. With thousands of providers, there?s plenty of room for more consolidation. Cable and utility companies will become attractive targets as telecommunications companies struggle to reach residential end-users on their own networks. As international markets deregulate and foreign ownership restrictions are lifted, companies with licenses and facilities will become prime acquisition targets. The benefits of a strong bull market have allowed past acquisitions to be paid for with stock rather than cash, making mergers and acquisitions economically feasible.

For more information, to purchase the report ($1995), or to get a copy of the report?s table of contents and exhibits, contact atlantic-acm at (617) 720-3700 or by e-mail: [email protected]. u