MERGERS AND ACQUISITIONS IN TECH, MEDIA AND TELECOM

By- Anjanee Goel and Mridul Jhalani

Introduction

As the swiftness of technological rejuvenation quickens, mergers and acquisitions can provide a fast track for accelerating product roadmaps, gaining entrance to new technologies and markets, and fending off competitors from both inside and outside one’s industry. 

This strategy is especially evident in the technology, media, and telecommunications (TMT) sector which in 2017 recorded an all-time high of 3,389 M&A transactions globally, worth a total of $498.2 billion[1].

A considerable majority of U.S. corporate and private-equity executives (68 percent and 76 percent, respectively) look forward to an uptick in the number of transactions across all industries in 2018. Over the past period of two years, 65 percent of corporate respondents said their cash funds have increased, and the primary projected use of that cash is M&A deals[2].

Mergers And Acquisitions In Tech

We live in scenario where everything and anything can be done by machines. As every kind of person has different ideas, we need to combine great ideas to get the best. This is why mergers and acquisition are important aspect for growth and profit. Mergers and Acquisition in global 2019 has increased to 164 billion in 2019 from dollar 88 billion in 2006.

Especially centers around the issue of how little and medium-sized ventures (SMEs) recognize and obtain new innovation from colleges. The exploration involves an investigation of the issue as far as the social relations among colleges and SMEs, and an endeavor to assemble and build up the possibility of an innovation bank internet webpage for use by SMEs.

Utilizing ideas from late work in social investigations of science and innovation, it is contended that a vital component to tending to the issue is to comprehend SMEs as configured clients both of government and approach activities, and of mechanical advancement.[3]

Strategic drivers for M& A in technology sector

In technology sector mergers & Acquisitions have become a strategic tool for companies to acquire new technology in order to survive in this competitive market. In IT sector it is M&A of knowledge than companies or brands, new startups or small companies have great ideas and lack of market demand, so for growth or increase in market share M&A took place as well as in IT sector customer seeks to get everything in one shop, very prominent example to it is acquisition by HP of electronic data systems for $13.9 billion.

Mergers & Acquisition in technology is mostly like horizontal merger. One of the most prominent bidder in technological M&A is oracle corporation which is a software company based in California, United states. Oracle seeks to strengthen its product offering, build good market base, meet customer demand and expand partner opportunities. Today we are able to get food at our home on clicks, we can talk to person on video chats, and this list goes on. This is because of technology and its growth by mergers & Acquisition.

Merger of Flipkart & Walmart

Arrangements including the obtaining of online retailer Flipkart by American shopping mammoth Walmart made this the greatest year for mergers and acquisitions including Indian organizations on record.

The all out estimation of exchanges was $125.2 billion, as indicated by information aggregated by market-tracker Thomson Reuters Deals Intelligence. Information is as of December 14. This is about double the $63.2 billion found in the earlier year. The retail fragment which included Flipkart was third with arrangements worth $18.3 billion.

Acquisition of Motorola mobility by Google

On acquisition of Motorola mobility by Google, acquired more than 20,000 mobile patent. Google acquired it in 2011.

Mergers And Acquisitions In Media

The media segment has witnessed merger influence during the past two decades in reaction to deregulation and technological development. The Entertainment and Media (E&M) industry is witnessing an evolution to mobile access and content contributions in the midst of a digital surroundings.

The altering nature of the industry, with a deliberate shift toward digital media, well-built corporate cash reserves and creation of private equity firms, has acted as the key catalyst for deal activity in the media sector.

The M&A wave in the E&M sector resulted from old media companies seeking to reinvent themselves in order to exploit the growing market for online media. The previous trend had been for diversified media.

Another factor for the increased M&A activity in the sector was the keen interest of cash-rich private equity firms in the steady cash flow generated by media companies. A major change for the E&M sector is that on account of M&A activity, the lines separating marketing service providers, content providers, technology companies and media companies are becoming increasingly blurred.

The biggest deals in the media sector during the past two decades include Time merging with Warner, buying Turner Broadcasting, and then selling itself to America Online; Disney buying ABC; Viacom buying CBS; and Vivendi buying Universal. Other major deals were the union of Comcast and AT&T Broadband, EchoStar and DirecTV, Vivendi Universal and USA Networks[4].

One of the catalysts has been speedy technological developments. The propagation of high velocity broadband and smart devices as well as the coming out of dual screen media utilization and ‘cord-cutting’ have all helped to make deal making as companies try to get to grips with a new industry model. The way community consumes media has evolved extraordinarily, and the challenge for traditional media companies is to discover ways to compete[5].

The Time/ Warner merger[6]

Time Warner, Inc. is a global leader in media and entertainment, with business in television networks, filmed entertainment and publishing. The main divisions of Time Warner are Turner Broadcasting System, Warner Bros., Home Box Office and Time, Inc.

Warner Bros. Entertainment is a fully integrated; broad- based Entertainment Company with businesses ranging from feature film, TV and home entertainment production and worldwide distribution to home video, digital distribution, animation, comic books, licensing and international cinemas and broadcasting.

In 1989, Time, Inc. and Warner Communication merged to create a world power in the field of media and entertainment. The merger created the largest media and entertainment conglomerate in the World. Time is a most important and leading book and magazine publisher with widespread cable television holdings.

The merger made Time Warner one of the few global media giants that were able to create and distribute information in virtually any medium. The merger positioned Time Warner to compete against major European and Asian companies. The merger entity had a stock market value of $15.2 billion and revenue of $10 billion.

The latest unit possessed the majority productive recorded music and magazine publishing business in the US and the prevalent television programming operation mutually for pay cable and prime-time network television.

The merger was also significant as it underscored the network companies’ vulnerability to competition. The merger facilitated Time Warner’s ability to create television programming, distribute it over its own cable system and syndicate it around the world.

Analysts believed that the size of the new entity would enable it to fend off unwelcome takeover bids.

AT&T and Time Warner merger case[7]

AT&T originally announced strategy to merge with entertainment company Time Warner back in 2016. The $85 billion deal solicited strong words from then-presidential candidate Donald Trump, who claimed the merger would put “too much concentration of power in the hands of too few.”

After Donald Trump was elected U.S. President, his Justice Department filed a lawsuit in opposition to AT&T and Time Warner to obstruct the proposed merger.

The lawsuit in March & appeal in December brought further by the DOJ mark the first time in numerous decades that the U.S. government has intervened in a merger. But a flourishing merger would indicate that one of the world’s leading wireless and telecommunications companies would merge with one of the world’s largest media and entertainment companies.

If AT&T’s attainment of Time Warner was to go through, the telecommunications would be able to market Time Warner’s massive pool of content to other cable companies and consumers. It would also aspire to collect usage data concerning viewership of the content, with the definitive goal being able to construct a digital advertising arm to compete with major competitors like Facebook and Google.

In addition to the major business implications of the AT&T-Time Warner merger, the antitrust lawsuit will have much broader inference for the world of mergers and acquisitions (M&As) in general. Undeniably, the case would be a trend for future mergers and acquisition deals.

Merger And Acquisition In Telecom

Telecom Sector is one of the most profitable and rapidly developing industries in the world. After China the Indian telecom sector has become second largest telephone network in the world and had seen phenomenal growth and profit during the past few years.

In India, mergers and acquisitions have increased to a prominent level from the mid-1990s. In the United States, the mergers and acquisitions in the telecom sector are going on in a full-fledged manner.

Merger and acquisition in the Telecom Sector are most likely to be a horizontal merger the reason is the two entities who involved in merger are operating in the same industry, and also on the same product lines.

From the last few years, In Telecommunication industry vertical mergers are popular and attractive because telecom vendors are trying to merge with telecom operators, especially at the operational level. In acquisition, most of the time one company buys controlling stock of another company. In Ghana Telecom and Vodafone’s deal there is purely acquisition by the Vodafone.[8]

After getting the tag of world second largest telecommunication industry, India has getting attention of many big foreign players in telecom sector. And with the huge expectation of growth and profit many foreign companies in telecom sectors wanted to enter in India. But due to spectrum limitation and other entry barriers they prefer to used merger and acquisition to expand their footprints in India.

Telecommunication sector has seen rapid changes in the technology in past few recent years like 2G, 3G, and 4G. So, for being in this competitive market firms are going for M&A. smaller firms are the most insecure player in this market and for their future existence in the market they easily give their approval for merge with bigger firms because brand name plays an important role in this competitive telecommunication sector and they knows that they will be in benefit by merging with bigger company.

Attraction and demand has been picking up in Indian telecom sector as the Indian government has eased the rules and regulation regarding inter-circle and intra-circle mergers. This has led to a slew of M&A in the recent past within the domestic players as well as acquisitions by international players in the domestic market.

India’s rising integration with the global economy has led to a spurt in M&A in the telecom sector. It’s a win-a-win situation for international and Indian telecom companies as it gives foreign firms a chance to expand their footprint in South Asia and at the same time, capital scarce Indian telecom companies get the much-needed finances for expansion.

Liberalization in India’s telecommunication industry was noticed when global investor came in India in 1995 with the permission of government. They came into India through joint venture route. Some of these global companies included Vodafone, telecom Malaysia, AT&T, Hutchison Whampoa and Telstra Australia.

In telecommunication sector merger and acquisition gave some negative effects, which include Monopolization of the telecom product and services, unemployment and others. However, various countries government is taking appropriate step to control these problems.

Vodafone- Hutchison Essar Merger in 2007

In 2007, Vodafone who is the world’s biggest telecom company in terms of revenue, made a major entry into the Indian telecommunication industry by acquiring a 52 percent stake in Hutchison Essar Ltd (Hutchison Essar), an Indian telecom company because, in 2007, India was most lucrative market for world telecom companies.

Vodafone had faced many problems for taking the deal – Firstly opposition by the HTIL, Essar Ltd, aggressive bidding by the other telecom operators and the regulators who took their time for approval of deal.

But finally Vodafone clinch the deal and outbidding the other telecom competitors. Some critics felt that the merger of Vodafone, Hutchison Essar was overpaid. But Vodafone board contended that they acquire a company in the most competitive telecommunication markets in the world so it was worth to pay for this deal.[9]


[1]https://www2.deloitte.com/content/dam/Deloitte/us/Documents/technology-media-telecommunications/us-mergers-acquisitions-tech-media-telecom.pdf.

[2] Ibid.

[3] James, Andrew D., Luke Georghiou, and J. Stanley Metcalfe. “Integrating technology into merger and acquisition decision making.” Technovation 18.8-9 (1998): 563-591.

[4] Kumar B.R. (2012) Mergers and Acquisitions in the Entertainment and Media Sector. In: Mega Mergers and Acquisitions. Palgrave Macmillan, London.

[5] https://www.financierworldwide.com/ma-in-the-media-sector#.XKYWfZgzbIU.

[6] https://doi.org/10.1057/9781137005908_4.

[7] https://www.investopedia.com/investing/att-and-time-warner-merger-case-what-you-need-know/.

[8]Godfred Yaw Koi-Akrofi, Motives for Telecom Mergers and Acquisitions, (Dec. 4 2014), http://www.ijias.issr-journals.org/.

[9] ICMR, The Hutchison Essar Acquisition: Vodafone’s Foray into an Emerging Market, 2008.


Articles

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: