The day after tomorrow: cross-border consolidation
* Five factors plus desire to pre-empt may catalyse cross-border
* Most (though not all) obvious transactions do not look imminent
* In the meantime, both eventual targets & acquirers can prosper
We have long argued a wave of consolidation would take place in Europe, starting with in-country mergers then gradually escalating to cross-border deals. As recent events in France have shown, in-country deals are fraught with difficulty, but there is at least broad agreement among operators and investors that they have merit. The same
cannot be said for cross-border transactions, which are regarded suspiciously. We try to maintain an open mind (albeit one that is necessarily a little sceptical). Nonetheless, we can identify several factors that might drive the industry towards a phase of pan- European consolidation:
(1) While most telecoms scale effects operate at the local, regional or national levels, this is not always the case – such as with some payTV content.
(2) There are levers that European regulators may wish to pull in order to encourage the emergence of a more pan-European industry, with the approach to spectrum licencing providing one obvious (if controversial) example.
(3) There is in theory also the potential to modify the approach taken in merger control to facilitate transactions with a cross-border dimension (though we must quickly add that this currently looks, in practice, unlikely).
(4) Technological developments, such as all-IP platforms, may enhance cross-border scale effects by comparison with what has been possible historically.
(5) Low interest rates. Individually these drivers may not be seen as compelling (hence our view that the phase transition towards cross-border M&A will likely take time), but bear in mind also that a desire to pre-empt rivals’ conjectured moves may be as likely as anything else to catalyse the process.