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Deal-making to quicken in 2015

Nicola Mawson
By Nicola Mawson, Contributor.
Johannesburg, 11 Dec 2014
Companies will be seeking out acquisition opportunities to develop new revenue streams and grow customer bases next year.
Companies will be seeking out acquisition opportunities to develop new revenue streams and grow customer bases next year.

More merger and acquisition activity is in the offing next year, as competition continues to heat up and new players enter the telecoms and IT spaces. This will lead to innovative services being created for the benefit of end-users, as companies seek new revenue streams.

So far, 2014 has been the ICT sector's most active year, as companies such as Telkom bid R2.67 billion for Business Connexion; MTN took a majority stake in Afrihost; Blue Label announced it is in preliminary buyout talks; and Internet Solutions bought out the bulk of MWeb Business.

The deal-making has been spurred on by companies looking to be more competitive - through greater economies of scale - as well as the shift towards convergence, which is seeing the C being placed firmly within ICT.

Deal catalyst

Independent analyst Paul Booth notes this trend will continue "apace" next year, as SA will continue to see a move towards sharing infrastructure, and bundling of IT services within telecoms. He also anticipates that, in Africa, activity will happen predominantly in the telecoms space.

Booth adds many deals still need regulatory approval, such as those involving Vodacom (which last year bid R7 billion for Neotel) and Telkom. These could act as a catalyst for other players to join in, although this may be more in the lower tiers.

BMI-Techknoweldge director Brian Neilson, concurring that the trend will continue, notes many companies could already be in talks, but have yet to come to an agreement.

Mark Walker, regional director of sub-Saharan Africa for the IDC, adds it is "inevitable" that deal-making will quicken next year because of increased levels of competition and new players coming into the market. Walker expects to see "a lot of action" in the IT services and telecoms space, "where these companies jockey to own customers by offering comprehensive services to match customer needs".

Some of the drivers behind deals are SA's economic realities, such as slowing economic growth and blackouts, which will push companies to consolidate so they can survive, adds Ovum analyst Richard Hurst.

New revenue

Neilson adds local players are also seeking new revenue streams in adjacent markets. In telecoms, this translates into a move into IT - such as the Telkom bid - while MTN's moves into the Internet service space will also characterise 2015.

More "rising star" Internet service providers (ISPs) will be bought next year, although this will depend on the quality and price of the targets, says Neilson. "The struggling ones are not necessarily the most attractive, but a few of them are likely to be acquired for their assets, such as spectrum - but again, the price has to be right."

The upshot of continuing consolidation, says Hurst, is that end-users will get "more bang for their buck", as more offers are added to a basket that continues to cost the same. In addition, he notes, the shift towards convergence, and new services in the cloud and unified communications spaces, will come to the fore next year.

Neilson says there is currently much activity in the metro fibre and fibre-to-the-building arena, and the country can expect that to accelerate in 2015, with niche players potentially being bought by larger companies. Yet, he notes: "There are not too many of these target companies, so this will not be a big trend," although new entrants in the adjacent fibre-to-the-home space could look attractive to a speculator, now that this is so topical.

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