Middle market merger and acquisition activity in the U.S. technology, media and telecommunications (TMT) sector will be robust at least well into 2019, driven by several factors. This indicates higher M&A valuation for companies in this sector. The telecommunications sector of TMT is served by the highly fragmented specialty contracting services industry, with a large number of participants. In addition to several large multi-national corporations, and numerous regional specialty service providers, there are many privately held companies offering program management, engineering, construction, maintenance, installation and underground facility locating services. Many of these companies are likely candidates for acquisition and/or consolidation by private equity firms and large national players such as Dycom Industries (NYSE: DY), Mastec Inc. (NYSE: MTZ) and Quanta Services Inc. (NYSE: PWR). Consolidation of the carriers and cable companies are driving mergers among specialty contractors, which is leading “bulge bracket” investment banks to establish funds to participate in M&A in this sector. Merger and acquisition activity in the global TMT for the first nine months of 2018 were worth a total of $3.3 trillion, the most since record keeping began nearly four decades ago. Announced deals involving U.S. companies accounted for more than 40 percent of all global M&A activity in the sector. Planned and completed mergers and acquisitions suggest that carriers and cable providers will look for acquisitions that expand their geographic footprints and diversify their customer base, Many service providers are actively building up their content portfolios via acquisitions in an effort to compete with the streaming content providers that threaten their market share by aggressively acquiring new customers—usually from service providers. At the same time, many in the industry believe the FCC is making it easier for carriers to join forces, making it a win-win for both sides. Notable transactions completed or announced in 2018 included AT&T’s acquisition of Time Warner valued at $85.4 billion--which has won final court approval--Disney’s acquisition of 21st Century Fox, appraised at $71.3 billion, the $39 billion Comcast offer for Sky, the T-Mobile plan to buy Sprint for $2.5 billion, and private equity firm Novacap’s offer to buy Horizon Telecom for $220 million. Increased M&A activity in the US telecommunications industry, a subsector of TMT, will be driven by two major trends:
- Capital expenditures (CAPEX) by the “Big Four” wireless telecommunications service providers for the rollout of fifth generation (5G) wireless technology cellular services. The 5G rollout by Verizon, AT&T, Sprint and T-Mobile requires firms hired for the infrastructure buildout to have the size and financial strength to qualify and deliver on their increased business.
- Consolidation, which is typical in a fragmented industry: the “Big Four” seek support from larger, more financially robust service suppliers and vendors as they roll out 5G.