Telecom M&As record $9 bn in 2008
The Economic Times, Mumbai, December 30, 2008: For Indian telecom's M&A story, 2009 will be all about making meaningful acquisitions where firms looking at India and Indian firms planning to buy overseas will look for clear value.

The year ahead may not present too many huge billion dollar plus deals, but the M&A saga will continue. The paucity of funds will be a deterrent and that is expected to bring in deals with more competitive valuations.

By all counts, 2009 will be a year which will be characterised by limited access to funds and valuations that are likely to be more compelling. The symptoms were actually being felt this year which had its fair share of deals with a ticket value of $1 billion.

Among them were Norway's Telenor deciding to pick up a 60% stake in Unitech for $1.2 billion and the more recent instance of Japan's NTT DoCoMo acquiring a 26% stake in unlisted Tata Teleservices for $2.7 billion.

The total value of all telecom M&A deals for 2008 has been just over $9 billion which was less than half of the $22 billion clocked for 2007, according to Thomson Reuters' data. The year 2007 witnessed the sale of Hutchison's telecom business in India to Vodafone for $10.8 billion. This accounted for a huge chunk of the $22 billion.

Interestingly, 2008 has been a year that witnessed the entry of new operators like Etisalat, Telenor and NTT DoCoMo. According to Salil Pitale, head (telecom & media), Enam Investment Banking, valuations will be down in 2009.

"There will be further consolidation though I do not expect too much of the big ticket kind. I think it will have a lot more to do with strategic cash coming into the firms," he thinks.

Citing the case of Vodafone buying out Hutch in India, where the cash went to the buyer, the mechanism, he says, will be different now. "Any possible M&A deal will largely be for putting money into the business to fund huge expansion," adds Pitale.

With valuations moving southwards, there is more than one reason for operators to enter India as well. "Having said that, it is important for them to enter India with an established player. New firms do not bring in any advantage except spectrum," points out Romal Shetty, executive director (telecom), KPMG.

Not surprisingly, the mega-deals struck over the last few years, 2007 in particular, were helped by the fact that cash was not hard to come by. "2009 will be a year for subdued activity. All the large operators are well-funded. A lot of M&A will depend on the access to funding," states Rajeev Gupta, MD and head of India buyout group, Carlyle.

With the equity and capital markets too facing a bleak period, how the M&A game plays out for Indian telecom will be something to watch.