Wireless M&A deals drop amid economic headwinds

In 2022, M&A deals for Asia-Pacific’s wireless industry faced a slowdown, with only 26 announced deals totaling $8.64 billion in transaction value.
M&A deals in Telecom Asia 2023
The decline in activity can be attributed to rising inflation and higher borrowing costs, prompting mobile operators to engage in small-scale divestitures of their tower assets to tower companies. This move was aimed at raising cash for debt reduction and capital expenditure plans, S&P said in its report.

Among the telco M&A deals in Asia-Pacific, operator consolidation and tower infrastructure transactions dominated. This trend emerged as a response to global economic challenges from the previous year. However, inflation in many Asia-Pacific markets is yet to peak, suggesting that monetary policy could remain contractionary for much of 2023, potentially continuing the effects of high borrowing costs seen in 2022.

Wireless deals accounted for the majority of telco industry deals, constituting 55.3 percent of the total transaction value in 2022. Although the number of wireless M&A deals slightly decreased from the previous year, the total deal value dropped significantly by 65.0 percent to $8.64 billion, indicating a shift from high-value deals to smaller, more affordable transactions.

One significant reason for this shift was the increased cost of financing M&A deals due to rising interest rates in 2022. Lenders also exercised greater caution in financing, preferring smaller ventures over higher-value ones.

The Philippines emerged as a notable market for wireless M&A deals in 2022, with a total deal value of $3.10 billion. Four deals contributed to this value, all involving mobile operators divesting tower assets to tower companies. Notably, PLDT Inc. and Globe Telecom Inc., the country’s incumbent mobile operators, sold more than half of their respective tower assets to raise funds for debt servicing, special dividends, and to realign their strategies in response to competition from DITO Telecommunity Corp.

The tower divestment deals between the mobile operators and tower companies in the Philippines are win-win solutions. Mobile operators can allocate capital to enhance mobile services, particularly 5G, while tower companies gain economies of scale and stable lease revenue streams through their expanded tower portfolios.

These tower divestments are indicative of strong growth expectations in the Philippine mobile industry, fueled by foreign investment in telco infrastructure assets. The government’s decision to shift to a tower-company-led industry model in 2019 initiated this surge in investments, with plans to build 50,000 new towers to support the growing number of mobile subscribers in the country.

Other notable tower divestment deals in Asia-Pacific during 2022 include NTT Docomo selling 6,002 towers in Japan, Telekomunikasi Selular divesting 6,000 towers in Indonesia, and Spark New Zealand  selling 1,500 towers in New Zealand. Additionally, Singapore Telecommunications offloaded its stake in India’s Bharti Airtel for $1.77 billion, the largest announced wireless M&A deal in Asia-Pacific for 2022.

The wireless industry’s strategic moves and adaptations to economic challenges in 2022 reflect an evolving landscape and a shift towards smaller, more focused transactions to enhance financial stability and future growth prospects.