M&A set to change Europe’s digital comms landscape in 2022

• There is growing expectation of significant M&A activity in Europe in 2022
• Major telcos are pressing for further consolidation
• It’s not just about major deals though – assets are already swapping hands

M&A activity in Europe’s digital communications sector is expected to ramp up in 2022 as the region’s fixed, mobile and cable operators reassess the strategic and fiscal value of their current assets and search for economies of scale in a market that is vital to consumers, businesses and governments, yet also increasingly financially insecure as competition intensifies and FTTH and 5G rollout costs put pressure on balance sheets.

The region’s major telcos have already been making noises about the need for greater consolidation in a region that is still home to scores of infrastructure-based operators: Orange and Vodafone have been vocal recently about the need for mergers in the Spanish market and reportedly even discussed the possibility of a full-blown group-level ‘merger of equals’ about a year ago (an idea that was shelved when it became clear the required support of the French state would not be forthcoming).

The Spanish market already witnessed a significant deal in 2021 as MásMóvil acquired Euskaltel in a deal valued at more than €2 billion. (See MásMóvil ready to bring in the brands as Euskaltel bid clears final regulatory hurdle.)  

Italy could witness the biggest and most significant M&A deal, as one of Europe’s largest and best-known operators, TIM (Telecom Italia), is already contemplating a change in ownership as the board mulls a €10.8 billion takeover offer from private equity firm KKR. (See KKR bids €10.8 billion to take Telecom Italia private.)

Closely linked to that move is potential merger of FiberCop, TIM’s fixed access unit (in which KKR is already a shareholder), with national wholesale broadband player Open Fiber to create a single national fixed access operator for Italy. That long-moored deal will only progress if political and regulatory approvals are forthcoming, and the news is more positive on that front as, reports Reuters, it seems like state investor CDP is once again making the case for FiberCop  and Open Fiber to merge. 

But it’s not all about the major Tier 1 players: In Italy, Tiscali and Linkem have just announced plans to merge their operations to create a single group that will have about 1.2 million customers and a near 20% market share of the country’s ultra-broadband services sector. The merger, which will see Linkem emerge as the controlling shareholder, will involve the integration of Tiscali’s fibre broadband business with Linkem’s fixed wireless access (FWA) operations. The companies hope the merger will “generate significant industrial synergies and take full advantage of the opportunities arising from the implementation of the Italian National Recovery and Resilience Plan (“PNRR”) through an integrated offering of fixed, mobile, 5G, cloud and smart city services.” 

Tiscali CEO Renato Soru noted: “After having contributed in a fundamental way to the diffusion of Internet services in our country, in the last two years Tiscali has redefined its business and created the conditions to be well positioned in the Cloud services offer and thus contribute to the challenge of digital transition that in the next few years will involve the Public Administration and the entire Italian economy. The integration with Linkem Retail is a significant step for the further development of services dedicated both to families, with particular attention to those in the digital divide areas, and to businesses and the Public Administration. Together, we will double our company size, but above all we will have the possibility to carry on our common growth project with greater strength. With this integration, and with the new and important partners, Tiscali can look confidently to the future with renewed growth prospects."

Tiscali and Linkem will no doubt be seeking to capitalize on the uncertainty surrounding TIM and FiberCop. 

Another market where the increasing value of fibre broadband network assets has been the catalyst for M&A chat is the UK, where there is still plenty of talk about how BT’s shareholding might develop in the future following the move last month by Altice owner Patrick Drahi to increase his stake in the national operator to 18%, though the introduction of the UK’s National Security and Investment Act might be a barrier to any full takeover plans the billionaire businessman might be harbouring.

Key to Drahi’s attraction is Openreach, BT’s quasi-autonomous wholesale fixed access division, which is currently pumping billions of pounds into the expansion of its fibre access network in a bid to pass 25 million premises by the end of 2026. Openreach is just one of many companies right now investing heavily in the UK’s fixed access infrastructure – in fact, there are so many players in the market right now that it’s only a matter of time before consolidation reduces the number and delivers some neat returns to the legion of infrastructure funds and private equity firms that have been throwing money at the UK’s trenches. (See UK FTTH/P sector set for inevitable consolidation, reckon operator execs and The rise of the UK fibre broadband altnet.)

In Germany, Deutsche Telekom looks set to have a busy M&A year, with CEO Tim Hoettges looking to strike a deal for the German giant’s tower assets while also assessing whether to hold on to DT’s 12% stake in BT and, reportedly, mulling an alternative ownership arrangement for enterprise services unit T-Systems. (See Deutsche Telekom CEO goes fishing (again) for towers deal.)

Telia, which has been revamping its portfolio to focus on its core Nordic operations during the past few years, has continued to optimise its asset holdings: It has just completed the sale of a 49% stake in its tower business in Finland and Norway to Brookfield and Alecta in a deal that valued that tower business at about €1.5 billion. The deal was first announced in June last year. 

And just today, the Swedish telco announced the sale for just €10.75 million of business services unit Telia Latvia to fixed line operator Tet, in which Telia holds a 49% stake. (See Telia Company in agreement to sell Telia Latvia to Tet.)

In Belgium, Orange announced late on Christmas Eve that, following a period of exclusive negotiations, its Belgian operation had agreed the acquisition of Voo in a deal that values the cable broadband operator at €1.8 billion. "This acquisition reinforces Orange's leadership in convergence in Europe and confirms the Group's long-term commitment in Belgium,” noted Mari-Noëlle Jégo-Laveissière, Executive Vice President of Orange Europe Operations. 

“This operation is based on a strong industrial project, drawing on the complementary nature of Orange Belgium and VOO,” added Jégo-Laveissière, who had hinted at upcoming deals for Orange during a media briefing in October. For further details of the proposed acquisition see our article from November: Orange closes in on its Belgian broadband booty.

Expect also to see further M&A action in Central and Eastern Europe. 

United Group, which has telecoms and media operations in eight markets in South-East Europe and which is owned by buy-out firm BC Partners, is set to announce the completion of its near €1 billion acquisition of Wind Hellas in Greece this month following unconditional approval from the European Commission for the deal. United Group says it will combine Wind, which has more than 4.2 million customers for its broadband, mobile and TV services and annual revenues of more than €500 million, with Nova (previously known as Forthnet), its fixed line and pay TV service provider in Greece, to “create a fully converged operator that will be the market’s number two player in both fixed and pay TV services.”

Meanwhile, Hungarian IT and comms services specialist 4iG continues to expand its regional empire, having just completed the acquisition of broadband, TV and fixed voice service provider DIGI, a move that makes it one of the largest telcos in Hungary. That deal came only weeks after it announced the planned acquisition of a majority stake in ALBtelecom, Albania’s largest fixed line operator, and a separate deal to buy Albania’s second largest mobile operator, ONE Telecoms: That deal is set to close in the coming weeks. 4iG also recently completed the acquisition of Telenor Montenegro.

It’s hard to imagine that Europe’s M&A activity will slow down as existing operators seek scale and private investors spy an opportunity for returns on increasingly valuable network assets that underpin digital economies, whether fibre or radio access network infrastructure, mobile towers, distributed data centres or the industrial IoT platforms that are now gaining in value as private networks become more popular. 

But as ever, the scope, size and impact of the activity could be tempered by regulators and competition authorities, as neutral host giant Cellnex, which has hit the M&A buffers over its planned deal to acquire Hutchison’s UK cell tower assets, will tell you.... telcos such as Orange and Vodafone will be seeking a less combative stance from the authorities in the coming 12 months. 

- Ray Le Maistre, Editorial Director, TelecomTV