Telecommunications companies diversify through M&A – TMT M&A: current and future trends 2021 – Lexology

Pressure on traditional Telco service providers (originally mainly voice and text or infrastructure) from other agile tech providers and other business growth issues, has led some to diversify into different business sectors through acquisition and joint ventures.

These businesses often have the capabilities to diversify, with known brands, customer focus and most importantly for many, customer bases to whom to sell new services. In some areas, they also offer the ability to be highly disruptive to the existing providers.

Joint ventures allow Telcos to move into new sectors quickly, with less risk than by acquisition and with the benefit of JV partner know-how. An example is the recent discussions between BT, Amazon and Disney over the development of BT’s television arm, BT Sport. We also expect more collaborative growth in mobile services and applications.

Accordingly, over the past few years we have seen original Telcos acquire business in the following areas, to add value to their customers and assist growth:

  • Mobile payments
  • Media/content
  • TV
  • Advertising
  • Water
  • Gas
  • Insurance
  • Financial services
  • Gaming
  • Home security
  • Cybersecurity
  • Hosting
  • Healthcare and medical information

Some companies began to diversify early, such as Orange moving into cybersecurity, content, IT and financial services, with Orange Money and Orange Bank. Verizon in the US, has made acquisitions in entertainment, cybersecurity, IT services, media and telematics.

Eversheds Sutherland’s TMT M&A Group has assisted Daisy Group on over twenty acquisitions, as it executed its growth and diversification strategy to (i) move from fixed line voice into mobile voice and data, broadband, ethernet, cloud, hosting, VOIP and maintenance and (ii) expand its business to provide wholesale IT communications and billing services to channel partners.

Eversheds Sutherland has also assisted Verastar in its M&A diversification. It has made twelve acquisitions including of water, gas, insurance and electricity supply businesses. Verastar now has 25 per cent. share of the business water market in Scotland.

Not all Telecom businesses have followed the acquisition diversification route, with others concentrating on their core strengths and infrastructure. An example being Comcast Corporation (the largest cable company in the US) expanding its fibre based network to access a further 350 businesses directly. These companies are striving to improve their pure telecommunications offerings.

In terms of diversification through acquisition, key lessons for the acquirers are to:

  • devote sufficient time to the newly acquired target;
  • ensure that planned synergies are obtained through proper integration programmes; and
  • work to understand the business ethos and practices of the acquired entity, which may be very different to that of a large corporation..