Global telecoms M&A is forecast to hit over $100 billion in 2019 according to industry experts, Statista. Consolidation is definitely a theme in places, particularly the fibre to the premises (FTTX) space which is highly capital intensive and very reliant on fast roll-out to get to consumers and businesses before the competition. The theme emerging from an EY Global Capital Confidence Barometer is that 58% of TMT executives plan to pursue M&A during the next year, up from 42% six months prior.

The interesting narrative that is starting to emerge around M&A is that it is “transformative”. This reminded me of a conversation that I had with an entrepreneur who spent quite a bit of his more recent career as a Chief Digital Officer of a couple of financial institutions. He wryly pointed out to me that any company that needs a Chief Digital Officer has not yet decided to transform! These companies still think that merely appointing a knowledgeable and probably competent person to such a role has solved the problem. This entrepreneur’s belief is that digital needs to be in the heartbeat of a corporation – something that I subscribe to. The meaning of this is that the CEO needs to be the person driving digital strategy, no one else, otherwise it will not succeed! How do we accomplish this, though, and why do I appear to have gone off-piste on this article?

Simply – M&A. Telecommunications, whilst being a fully digital industry, is strangely old school in its activities. Another senior executive was heard saying that they tried many times to penetrate board conversations with digital initiatives, only to have the CEO say that voice and data bundles for the coming Christmas season needed focus. Digital is not data….

The M&A initiatives therefore enable a chunky business to be bought into the organisation and be treated as any other acquisition would be – from the top. This, too, is not a guarantee of success, but at least it gets senior attention. The EY survey mentioned above talks about M&A being the engine of growth, and we as Corniche would unsurprisingly support this thesis. Our world is seeing these opportunities, not only to consolidate or grow, but also to improve a company’s position in the world of competition.

Moving on to another theme that I have seen emerging; the use of M&A to replace traditional R&D to some extent. Venture funding is readily available to help start-up companies get to a good level of technology development without the constraint of trying to fit into a straitjacket of corporate rules, the fact that the average corporate may not spend as much on acquisition of this technology as they would have trying to develop it. I heard the co-founder of Skype speak at a conference recently and what they set out to do would not fly easily in your average corporate – zero cost calls.

But there is also the strategic angle. We mentioned earlier the telco’s which are still today reliant on voice and data bundles. The ability to acquire companies that give some form of differentiation is very important. Telco’s have incredible reach which has not been leveraged except in exceptional circumstances such as the mPesa payment system from Safaricom in Kenya. This reach can turn a start up into a world beater… IF it is left to use this infrastructure rather than absorbed into being another “product” set. Certainly the EY report talks to the media and entertainment (including gaming) executives seeing M&A as a tool to position themselves for the future. Telco executives on the other hand see 5G as the next technology allowing convergence plays in adjacent industries such as gaming and IoT. Our experience does not give us much excitement though – these same executives saw 3G and LTE as offering convergence. But there are some executives who really do see a future which does not look the same as the past and we do enjoy working with such folk.