Telecoms deal making on hold in 4Q08

According to a new study from Ovum, the global analyst and consulting company, global economic downturn depressed valuations and deal making in the telecom sector in 4Q08.

Mergers and acquisitions (M&A) deal count was 129 in 4Q08, from 192 in 4Q07, with only four deals valued above $1 billon, from 10 in 4Q07.

Public stock offerings dried up, from 14 deals in 4Q07, to just two in 4Q08; both from carriers based in the relatively robust Middle East & Africa region.

Private placements also fell, from 25 deals in 4Q07 to just six announced in 4Q08; five small ones, and a large one in Asia Pacific which was Telenor’s $1.2 billion for a 60% stake in India’s Unitech Wireless.

Venture financing was flat year on year in 4Q08 (deal count and value), with most funds targeting US-based vendor start ups.

Matt Walker, Ovum principal analyst and author of the report, said: “The financial market turmoil resulted in the acceleration of some deals, but uncertainty was the dominant factor. While this uncertainty lasts, there is incentive to sit and wait, until expectations and valuations stabilize. Preliminary analysis of 1Q09 results confirms this view, but finds activity picking up in some areas.”

Noting that telecom is a huge industry worldwide, with service revenues of roughly $1.4 trillion in 2008, and network capex of $200 billion, Walker says it was inevitable that the industry be impacted by macroeconomic conditions.

However, he added: “Telco financial health is stronger than several years ago. The industry has a variety of funding mechanisms available, and it is still perceived as central to economic growth.”

Further, in several large markets, such as China, the US, Germany and Australia, telecom players are receiving government support (e.g. direct subsidy, tax breaks, and so on) aimed at offsetting the recession’s impact on telecom’s fortunes.