African Telecommunications sector to boost M&A activity

London (Capital Markets in Africa):- Moody’s released a report titled: M&A Activity to Reshape Competitive Environment as Markets Mature and Consolidate, on 14 May 2015, stated that it expects more consolidation within African telecom’s markets as existing operators (especially smaller third or fourth tier companies) are looking for ways to minimise  costs and increase  their market share.

The report highlighted further,  that African telecoms market comprised of a mix of local, regional and international operators, some of whom have developed competitive regional footprints. African countries with four or more operators or with telecom companies that have a market share of less than 15 per cent are likely to see more consolidation. However, the average number of operators in each African country is three, with some countries, such as Uganda, Cote d’Ivoire and Tanzania, with six operators.

“Not all countries are able to support a large number of operators, and smaller wireless operators are finding it increasingly difficult to compete and increase their market share profitably,” says Dion Bate, Vice President/Senior Analyst and a co-author of the report.

“Companies considering potential mergers or acquisitions will be hoping for cost savings through improved economies of scale and the opportunity to apply uniform and improved branding, service and product offerings.” 

Most telecoms companies will require funding to pursue M&A opportunities. With many of the larger international operators already facing revenue constraints and capital expenditure needs in their core domestic markets and thus less likely to pursue M&A opportunities in Africa, we may see some revisiting their African footprints as others seek to strengthen their regional positions. This refocusing on domestic markets may also result in some European operators leaving African markets where they have smaller shares, according to the Moody’s report.

Nevertheless, some smaller regional players may face weaker access to capital as a result of concentrated exposures to mostly sub investment-grade countries in South, East and West Africa where capital markets are less developed.

In addition, the report anticipates cross-market consolidation to be less challenging for the larger regional operators to pursue where greater geographic diversification and sizable market shares can be achieved.