Europe's M&A volume doubles in the first half of 2013

Mergers and acquisitions worth around €60 billion were announced in Europe's telecoms market in the first half of this year, almost double the volume in the same period last year.

According to Dialogic data cited by the Wall Street Journal, this trend is set to continue throughout the year as bankers expect mobile operators in particular to pursue consolidation options in order to bolster their operations in an increasingly difficult environment.

"Notwithstanding the deals that have happened, the industry continues to reshape to address the ongoing opportunities, including convergence, and challenges. There is still plenty to be done," Cyrus Kapadia, deputy head of U.K. Investment Banking at Lazard, told the Journal. "The European telecom markets are increasingly competitive and, with growth hard to come by, telcos need to continue to differentiate themselves and reposition their portfolios in the face of continued technology changes," he added.

Vodafone's recent €7.7 billion bid for Kabel Deutschland is a prime example of how mobile operators are reinventing themselves in order to flesh out their mobile offerings with home broadband, telephone and TV services.

Elsewhere, mobile operators are merging within national markets: Hutchison Whampoa is buying rival operators in both Austria and Ireland to expand the footprint of its respective 3 units. In turn, debt-burdened operators are working to raise some cash: For example, Telefonica is selling O2 Ireland to Hutchison for €850 million to reduce debt, and Orange has offloaded Orange Austria for €1.3 billion.

"The issue is relative scale…so if you're not No. 1, No. 2 or worst case, No. 3, then you absolutely feel the pressure to consolidate," Alex Bhak, a London-based partner at consulting firm Bain & Co., told the Journal. "European telecoms are being hit by a double whammy," he said. "You've got pressure on earnings on the one hand…[and] the need for further investments in things like 4G and fibre networks."

Leading telecoms executives are generally supportive of consolidation in Europe, but also warn that regulation must allow this to happen. The European Commission's Neelie Kroes said she will address consolidation as part of wider efforts to create a single market for telecoms in Europe.

This year could see further deals emerge: for example, AT&T is believed to be interested in snapping up a European bargain, while Mexican billionaire Carlos Slim has demonstrated interest in expanding in the region through his previous KPN and Telekom Austria purchases. Deutsche Telekom is rumoured to be seeking new targets to expand in Eastern Europe, and there is persistent speculation that Vodafone could buy more fixed-line operations, such as in Spain.

It also can't be ruled out that Hutchison will look for further acquisitions. The Hong Kong-based company has just been foiled in its attempts to expand in Italy after Telecom Italia called off talks on a possible merger of their respective mobile operations. Egyptian billionaire Naguib Sawiris is also believed to be interested in re-entering the Italian market, and Wind has been cited as a possible target for future bids.

For more:
- see this Wall Street Journal article (sub. req.)

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