Telecommunications deals in Europe are popping up faster than spring flowers. Mobile giant Vodafone Group PLC (VOD ) shelled out $4.4 billion in mid-March to grab wireless companies in Romania and the Czech Republic. Barely two weeks later, the Czech Republic accepted a separate $3.5 billion bid for 51% of fixed-line and mobile operator Cesky Telecom from Spain's Telefónica, which snatched the company away from the expected winner, Swisscom (SCM ).
Now all eyes are on potentially one of the largest European acquisitions of the year -- the battle for Italy's No. 3 wireless operator, Wind Mobile Group (EN ). A consortium of investors led by Egyptian telecom mogul Naguib Sawiris, which includes American financier Wilbur L. Ross Jr., has the lead over rivals with a $15.6 billion offer for the company, owned by Italian utility Enel (EN ). A decision is imminent. After three years of post-bubble paralysis, telecom dealmaking is roaring back to life in Europe. In the last six months, investors have plunked down more than $57 billion for European telecom properties, according to figures from London-based tracker Dealogic. That's more than triple the $18.7 billion recorded in the same period a year earlier.
"There is real pent-up pressure for telecom consolidation in Europe," says Paulo Pereira, head of European mergers and acquisitions at Morgan Stanley (MWD ) in London. Some of the buyers, such as Telefónica and Vodafone, are other phone companies. But private-equity groups are also jumping into the fray. Sawiris fought off a competing bid for Wind led by New York-based Blackstone Group Inc. And on Apr. 4, Texas Pacific Group and Apax Partners Inc. jointly spent more than $1.4 billion to buy No. 3 Greek wireless operator TIM Hellas Telecommunications (TIMHY ).
Why the sudden burst of activity? Four years after the downturn that nearly bankrupted Western Europe's telecom sector and cost the job of virtually every boom-era chief executive officer, companies have finally got their financial houses in order. Debt levels for the industry as a whole are down to just 1.4 times earnings before interest, taxes, and depreciation, which is lower than historic norms. And thanks to cost-cutting, the big incumbent telcos are still spinning off gobs of cash -- as much as $60 billion this year alone, according to forecasts. Indeed, Merrill Lynch & Co. (MER ) figures that over the next three years,
Nonetheless, that resistance could begin to wear down next year and beyond, as companies face relentless pressure from shareholders to rev up revenue growth. One investment banker predicts giants like France Telecom (FTE ) and Deutsche Telekom (DT ) will spend another year getting into fighting trim. After that, they and other former flagships may start shopping for mergers with other big operators.
Some argue that such mergers would be a relic of the past, when carriers operated everything from the wires in the ground to the consumer and business services that ran over them. Ovum's Hewett, for instance, predicts that Europe's telecom sector will more likely evolve toward two to three big network operators in each country, with many other providers selling services that use the common infrastructure. It's too soon to tell which vision will bear out, but one way or another, European investment bankers are likely to be plenty busy.
