Analysys Mason Overview of upcoming mergers and aquisitions opportunities in the TMT space in Asia (February 2010)

Overview of upcoming M&A opportunities in the
TMT space in Asia
Amrish Kacker, Lim Chuan Wei
February 2010
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2

Contents

Introduction
About Analysys Mason
M&A opportunities in the Asia–Pacific region
Our general methodology
Our due diligence expertise

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3

Introduction



With the thawing of capital markets in the wake of the financial crisis, M&A activity worldwide, including in
Asia, is expected to pick up in 2010



Within the TMT sectors, M&A opportunities – both new and those postponed previously due to the crisis –
should emerge or resurface quickly in the immediate period



This brief presents Analysys Mason’s perspectives and insights into the M&A opportunities for the TMT
sectors in Asia



The remainder of this document is structured as follows:
About Analysys Mason – a short introduction on who we are and what we do
M&A opportunities in the Asia–Pacific region – our views on what M&A opportunities may be
available, why they would interest financial institutions, and which are the most attractive to pursue
Our general methodology – our analytical methods for supporting such opportunities
Our due diligence expertise – our capabilities and experience in transactional support and due
diligence

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4

Introduction
About Analysys Mason
M&A opportunities in the Asia–Pacific region
Our general methodology
Our due diligence expertise

Ref: 5445-66

About Analysys Mason

5

Analysys Mason is the world’s premier adviser in
telecoms, IT and media
Global presence and experience

Integrated service offering
Strategy

Planning
Market
intelligence

Review
Implementation
Assignments completed

Analysys Mason office



Through our global presence, we deliver strategy advice, operations support and market intelligence to leading operators,
regulators, financial institutions, broadcasters, vendors and enterprises in over 80 countries



Our people have had a major influence on the industry for more than 20 years:
led the liberalisation of telecoms across Europe and Asia and mediated in policy issues for operators and regulators
supported several hundred transactions and licence acquisition processes for operators and financial institutions
provided strategic and operational support to major operators in the roll-out and expansion of businesses across the
sector, enhancing enterprise value
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About Analysys Mason

6

Our consulting advice is valued across all sectors

Enterprise users

Public sector

In particular, we have provided
commercial and technical due
diligence services to financial
institutions and mobile and fixed
operators worldwide

Providing ICT and
procurement advice
for emergency
services and public
bodies

Mobile operators
Delivering value
through strategy
planning and
implementation

Helping to
maximise
returns from
investment in ICT

Regulators
Establishing and
implementing
policy frameworks
in telecoms
and media
markets

Media companies
Helping to
maximise revenue
in converging
markets

Financial
institutions
Supporting
vendors, sellers
and financiers

of industry
transactions
Fixed operators
Defining new
strategies,
optimising
service
portfolios and
supporting policy
development

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About Analysys Mason

7

Our success is built upon a deep and rigorous understanding
of key sector issues


Mobile




Impact of mobile broadband
WiMAX – threat or opportunity?
Revenue-maximising pricing propositions






Next-generation access strategies: FTTx
versus wireless
Wholesale product definition in NGNs
Strategies for fixed–mobile convergence



Capitalising on the digital dividend
Regulatory environments to deliver NGA
and NGN
TV regulation in a converging market







Content distribution strategies in a
converging market
Creation and distribution of ‘three-screen’
services
Maximising value of advertising inventory



ICT consolidation and cost optimisation





Service fulfilment and assurance





OSS/BSS legacy migration





Broadband






Regulation







Media

ICT infrastructure











RAN sharing and other cost reduction
strategies
OSS/BSS optimisation
Evaluating advertising opportunities
Value migration from infrastructure to
services and content
Efficient NGN procurement processes
OSS/BSS and customer support
Effective spectrum management
strategies
Licence allocation and acquisition

processes
Delivery of end-user experience
Regulation for a converged industry
Assessing the impact of media players
entering the telecoms market
OSS/BSS process optimisation
WAN acceleration
Construction, location and optimisation of
contact centres and control rooms
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About Analysys Mason

8

We have an established track record of working with the
major financial institutions


Analysys Mason has undertaken over 100 due diligence assignments since 2002



We have undertaken a similar number of projects in support of vendor financing, M&A and private placements



We have worked with a wide range of operators, investment banks, private equity firms, strategic investors and governments

Selection of businesses on which we have undertaken due diligence
BTC, Bahamas (2009) • JTL, Kenya (2009) • Avea, Turkey (2008) • Aktel, Bangladesh (2008) • MTN, Africa (2008) • ONI, Portugal (2008)
PCCW, Hong Kong (2008) • Zain, Nigeria (2008) • Excelcomindo, Indonesia (2007) • Safaricom, Kenya (2007) • Lattelecom, Latvia (2007)
ONE, Austria (2007) • Camtel, Cameroon (2007) • MTC, Saudi Arabia (2007) • National Grid Wireless, UK (2007) • Vivatel, Bulgaria
(2007)
TIM, Greece (2006) • Magticom, Georgia (2006) • Bite, Lithuania, Latvia (2006) • Armentel, Armenia (2006)

Selection of financial institutions that have chosen Analysys Mason for due diligence assignments
ABN AMRO • Apax Partners • Bank of Ireland • BBVA • BC Partners • BNP Paribas • Capital Partners • Carlyle • CDC Group Citigroup
Credit Suisse • Deutsche Bank • EBRD • Export Development Canada • Eurazeo • Finnvera • GE Capital • HSBC • ING • JP Morgan
Kohlberg Kravis Roberts • Lazard • Lloyds TSB Bank • NM Rothschild & Sons • The Royal Bank of Scotland Group • SACE
Société Générale • Standard Bank • TecCapital Investments • TD Bank Financial Group • UniCredit Banca Mobiliare
WestLB • World Bank Group

Selection of operators that have chosen Analysys Mason for due diligence assignments
Telkom South Africa • Telstra Europe • Zain Nigeria • Bahamas Telecommunications Company • Cable & Wireless UK • ONI Portugal
Mauritius Telecom • Reliance • National Grid • Safaricom • Etisalat • Vodafone Australia • Thus
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About Analysys Mason

9

We have in-depth market experience in the Asia–Pacific
region to help financial institutions evaluate opportunities …
Project experience in the Asia–Pacific region by sector
Mobile

Broadband

Fixed

Media

Regulatory

ICT

East Asia
China & Mongolia
Japan & South Korea
Hong Kong & Macau
Taiwan

South Asia
India
Pakistan
Bangladesh
Sri Lanka

South-East Asia
Indonesia
Thailand
Cambodia, Laos & Vietnam
Philippines
Malaysia & Brunei
Singapore

Oceania

Australia
New Zealand
Company experience

Additional project experience of core Singapore team

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About Analysys Mason

10

… having worked on a variety of projects across the region
Selected projects in the Asia–Pacific region
1

Development of a detailed cost accounting system

2

Estimation of revenue forecast in China for mobile broadband services

3

Comprehensive mobile LRIC cost study for a mobile operator, to calculate
termination

4

5

Review of strategic rationale for proposed merger between two operators

6

(a) Assessed a mobile operator’s business model to evaluate a 3G
opportunity. (b) Due diligence of integrated telecoms and media operator.

7

Due diligence of cellular operator

8

(a) Due diligence of an integrated wireline and wireless operator. (b)
Supported an integrated operator in growing its international voice
business.

9

8

(a) Several studies for a mobile operator, including assessment of
telematics and FMC. (b) For a content player, devised an entry strategy
into the European market.

Study of regulation and competition in the wireless local loop market

10

Business planning for WiMAX new entrant

11

A range of projects for a mobile operator, including business planning,
compensation negotiation and 3G licence support

12

(a) Evaluated the 3G opportunity and alternate business structures for a
mobile operator. (b) Mobile operator’s MVNO strategy and wholesale
pricing. (c) WiMAX business planning for new entrant

3

2

1
7

6
9

13

12

4

5
10

11
14

15

Assignments completed

16

13

(a) Pricing strategies for an incumbent operator.
(b) Due diligence of CDMA WLL operator / WiMAX licence holder

14

(a) Due diligence of a mobile operator. (b) Assessed strategic
options in infrastructure sharing / MVNOs for new 3G operator. (c)
WiMAX business plan for a new entrant

15

For Vodafone Australia, undertook a critical review of a bottom-up
mobile network cost model developed on behalf of the regulator.

16

Provided expert advice on the TSLRIC for both LLU and co-location
services.
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11

Introduction
About Analysys Mason
M&A opportunities in the Asia–Pacific region
Our general methodology
Our due diligence expertise

Ref: 5445-66


M&A opportunities in the Asia–Pacific region

12

M&A activity is widely expected to heat up in 2010
Effective M&A deal value in Asia-Pacific,
by quarter (USD billion)
180

With the thawing of capital markets in the second half of
2009, M&A activity has begun to pick up



There was reportedly a 32% increase in number of
worldwide M&A transactions in 4Q 2009



M&A activity is expected to continue heating up into 2010

156

155

160



Quotations from industry
120
104
100

92

86

“The future looks encouraging for M&A with strong
indicators in the last quarter…we anticipate deal activity to
increase in 2010…”

+30%

80
58

60

61

47

40

Neil Masterson, Global Managing Director of Investment Banking,
Thomson Reuters

“Global M&A activity would rise as much as 35% in 2010 as
improving economic conditions bolster dealmaking…”
Research firm Sanford C. Bernstein

20

20
0
3Q 8
20
0
4Q 8
20
0
1Q 8
20

0
2Q 9
20
0
3Q 9
20
09

2Q

20
08

1Q

20
07

0
4Q

Deal value (USD billion)

140

"The relatively high volume of deals recorded in the fourth
quarter of 2009 hints at a resurgence of M&A activity for the
new year…"
Research firm Dealogic
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Source: Thomson SDC, press releases, Analysys Mason


M&A opportunities in the Asia–Pacific region

13

Current macro-trends in the TMT sectors, in particular,
present opportunities for M&A
New technologies


Technological trends present further
opportunities for M&A activity, as operators
make strategic shifts in response



Key trends include:
WiMAX
IPTV
fixed-mobile convergence

Industry consolidation


In more fragmented sectors and
across sectors, there is a move
towards consolidation, e.g.:

fragmented telecom markets
between telcos and media players
between fixed and mobile operators
between telcos and ICT players

Maturing markets

Opportunities for M&A



In some markets, especially developed
ones, the telecoms industry has
reached substantial maturity



Operators in these markets tend to
have relatively stable cash-flows, low
debt, and are in possession of
significant assets, making them
potentially attractive LBO targets

Ref: 5445-66


M&A opportunities in the Asia–Pacific region

14

At a regional level, there are several trends further fuelling
M&A activity
Regional operators are consolidating down the
value chain in enterprise services

Some technologies have the potential for a
regional play



Some telcos are moving into the ICT space to better
serve enterprise clients



WiMAX is being explored as a regional proposition
for wireless broadband in parts of Asia



These players have sought acquisitions of system
integrators, software/application companies and other
service providers down the value chain to bridge
capability gaps and provide end-to-end solutions



DTH players have gone regional in the Middle East,
and can potentially do so in Asia (barring regulatory
issues)

Operators are seeking greater cost economies by
regionalising network outsourcing, call centres


Operators with multi-market presence are consolidating
their cost centres (e.g. network operations, customer
service operations)



These efforts are helping to drive regional ambitions

Regional operators continue to be a source of
M&A activity in emerging markets


Regional operators such as NTT, SingTel, Axiata,
etc. continue to be amongst the more visible players
in the M&A space, as they pursue investment
opportunities in emerging markets within Asia



Other regional players from outside the Asia–Pacific
(e.g. Etisalat) are seeking to increase their presence
in Asia

Ref: 5445-66

M&A opportunities in the Asia–Pacific region

15

We see a number of market-specific opportunities
requiring financing, and potentially an equity injection
South Asia

East Asia



India’s mobile market remains
fragmented and poised for further
consolidation…



China has entered into 3G, and
operators are consolidating their
presence in the content/VAS space



…particularly with the onset of 3G and
opportunities for national expansion





Players in Bangladesh are still
seeking external funding support

In Hong Kong, there is potential for
restructuring plays in the telecoms
and media sectors



Fragmented subsectors in Taiwan
and Korea are likely to see more
consolidation, though this might be
marginal

South-East Asia


Consolidation is expected in
Indonesia’s mobile sector



In Thailand, operators are preparing
to push more strongly into data
services



In Singapore and Malaysia, operators
are making forays into convergence



In Vietnam, there is strong interest for
foreign investment in the mobile
space

Oceania


Government pressure on Telstra for
restructuring opens the possibility of a
divestment of its fixed and broadband
assets

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M&A opportunities in the Asia–Pacific region

16

In East Asia, some opportunities are more interesting than
others
Assessment of opportunities in East Asia
Market

1

Restructuring of PCCW

Hong Kong

2

Spin-off of handset manufacturing
operations of Huawei and/or ZTE

China

Consolidation and/or acquisition of mobile
VAS providers

China

4

Sale of Shaw Brothers’ stake in TVB

Hong Kong

5

Buyout of i-cable

Hong Kong

6

Buyout of ATV

Hong Kong

7

Buyout of Vibo Telecom

Taiwan

8

Marginal consolidation of cable operators

Taiwan

9

Consolidation of pay TV operators

Korea

3

2

High
Potential value

Opportunity

MEDIUM

HIGH

ATTRACTIVENESS

ATTRACTIVENESS
4

9

5

1

3

8 6

MEDIUM

7

ATTRACTIVENESS

Low

Low

Possibility

High

If you are interested in discusssing any of these opportunities further, please contact Amrish at
or Chuan Wei at
Ref: 5445-66


M&A opportunities in the Asia–Pacific region

17

The possible restructuring of PCCW remains an
opportunity to watch
What is happening?






PCCW has been exploring potential restructuring
options for sale of its assets, but has not been
successful
Most recently, PCCW dropped a privatisation bid in
April 2009 after regulators blocked the plan due to
allegations of shareholder manipulation
It remains possible that PCCW will renew such efforts

in the wake of a pick-up of activity in capital markets

How Analysys Mason can provide support


We are able to provide commercial and technical
pre-due diligence, and due diligence services in
support of this opportunity



These include:
review of the Hong Kong telecoms market
review of the competitive environment

Why this is of interest




A deal could present an opportunity for the acquisition
of a stake in PCCW
PCCW could be an attractive target, given its:
stable revenue and cash flow

review of business plan and growth prospects
review of network assets
review of potential synergies between fixed,
mobile and pay-TV assets
valuation of stake and review of bid

potentially higher valuation through cost-cutting
measures or management change

Ref: 5445-66


M&A opportunities in the Asia–Pacific region

18

In South Asia, the most compelling opportunities are in
India
Assessment of opportunities in South Asia
Market

Consolidation/ regional expansion of
mobile operators in India

India

2

Consolidation of towers

India

3

Merger/acquisition between Africa-Indian

operators

India

4

Consolidation of cable / satellite TV
broadcasters

India

5

Divestment of SingTel’s stake in PBTL

Bangladesh

1

3

High
Potential value

Opportunity

MEDIUM

HIGH

ATTRACTIVENESS

ATTRACTIVENESS

21

4

5

MEDIUM
ATTRACTIVENESS

Low

Low

Possibility

High

If you are interested in discusssing any of these opportunities further, please contact Amrish at
or Chuan Wei at
Ref: 5445-66


M&A opportunities in the Asia–Pacific region

19

Growing consolidation activity in the tower market in India
should be of interest
What is happening?


As demand for towers grows in tandem with the mobile
market in India, medium-sized tower companies are
embarking on a consolidation spree to accelerate
roll-outs and compete more effectively
in January 2009, Tata Teleservices entered into a
joint tower venture with Quippo after selling a
49% stake of its tower arm
in March 2009, American Tower Corp acquired
Indian tower firm Xcel Telecom

Why this is of interest


Increasingly, tower companies will be looking actively
for partners to fund their expansion



There could also be short-term opportunities from
acquiring still-undervalued tower companies that could
be targets for acquisition by other companies

How Analysys Mason can provide support


We are able to provide commercial and technical
pre-due diligence, and due diligence services in
support of potential acquisitions in the tower market



These services include:
review of the Indian telecoms market and its
implications for tower demand
review of the Indian regulatory environment
review of the competitive environment
review of the technology landscape and
implications for target
benchmarking of best practices in tower mergers
review of target’s business plan, growth
prospects and opportunities
valuation of target and review of bid

Ref: 5445-66


M&A opportunities in the Asia–Pacific region

20

In South-East Asia, the main opportunities stem from
operators looking externally for capital injection
Assessment of opportunities in South-East Asia
Market

1

Strategic investment into TRUE Move

Thailand

2

Privatisation of mobile operators

Vietnam

3

Consolidation of towers

Indonesia

4

Strategic investment into Sun Cellular

Philippines

5

WiMAX consolidation in Indonesia

Indonesia

6

Acquisition/expansion of broadband
operations by mobile operators

Malaysia,
Philippines,
Singapore

7

Consolidation of pay TV operators

High
Potential value

Opportunity

MEDIUM

HIGH

ATTRACTIVENESS

ATTRACTIVENESS
2

3

8

12

7
6

13

Indonesia

8

Consolidation of mobile operators

Indonesia

9

Buyout of Jasmine

Thailand

10

Buyout of u-mobile

Malaysia

11

Consolidation of alternative pay-TV operators Thailand

12

Merger of Astro and Maxis

Malaysia

13

Divestment of towers by incumbents

Thailand

11

Low

1

9

4

MEDIUM
5

ATTRACTIVENESS

10

Low

Possibility

If you are interested in discusssing any of these opportunities further, please contact Amrish at
or Chuan Wei at

High

Ref: 5445-66


M&A opportunities in the Asia–Pacific region

21

There is strong interest for greater foreign investment into
Vietnam’s mobile sector, especially with privatisation
What is happening?






All three of Vietnam’s major mobile operators (Viettel,
Vinaphone and Mobifone) are still state-owned
In 2005, the Vietnam government approved the
privatisation of Vinaphone and Mobifone, but this has

yet to happen, even though several foreign operators
have expressed interest
3G licences were issued in 2009, and all three
operators are now rolling out 3G services

How Analysys Mason can provide support


We are able to provide commercial and technical
pre-due diligence, and due diligence services in
support of potential investments in Vietnam



These services include:
review of the Vietnam mobile market
review of the Vietnam regulatory environment
review of the competitive environment

Why this is of interest




The liberalisation of the mobile sector presents
opportunities for foreign investors to take a stake in the
growing Vietnam mobile market, in which each major
operator holds approximately a one-third share
The roll-out of 3G networks and services means that
Vietnamese operators will be in need of capital and

3G-related expertise more so than ever

assessment of new entrant threat
review of the technology landscape, including 3G,
and implications for target
review of target’s business plan and growth
prospects, especially with 3G
valuation of target and review of bid

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22

Introduction
About Analysys Mason
M&A opportunities in the Asia–Pacific region
Our general methodology
Our due diligence expertise

Ref: 5445-66


Our general methodology

23

Our focus has made us the adviser of choice for due
diligences of companies within the TMT sectors


Our assignments cover all sectors of the TMT market



we have undertaken due diligence on numerous
mobile, fixed and cable network operators,
carriers, equipment vendors, broadcast operators,
tower companies and solutions providers


We have significant experience in working on both the
buy-side and sell-side of due diligence



We have a comprehensive knowledge of technologies,
networks and operations throughout the various
sub-sectors of the telecoms market

Fixed

Wireless

Cable

ISP

Carriers

Satellite

Application

Equipment

Virtual

Our structured methodology, supported by rigorous
research, ensures that:
we address all key issues, for example, crosschecking business model revenue forecasts with a
top-down, macroeconomic affordability analysis
we meet tight deadlines, and can deliver a red-flag
report two weeks into a project, to provide early
warning of any critical issues



Our broad international project experience and access to
in-house benchmarks, combined with proprietary tools
and proven techniques, provide a framework for robust
forecasting of key telecoms indicators, identifying and
assessing sensitivities, covenant setting and monitoring



We have in-house network design and operations
consultants who can provide:
high-level network designs to test network
capability and capex projections aligned with

business and market plans
the ability to deliver telecoms services on a timely
basis and to optimise the customer experience
while minimising opex and assuring revenue
Ref: 5445-66


Our general methodology

24

With our structured approach, we address all the
commercial and technical issues efficiently and robustly
Commercial
environment & strategy


Service portfolio



Pricing policy, risks and
price positioning







Recent and expected
developments in:

operator
licensing
spectrum
licensing

Competitive landscape:
profiling of
competitors

numbering

market shares and
new entrant
scenarios

price controls

Assessment of
opportunities and
threats

Company revenues
and margins


interconnect
regime

Marketing strategy:
subscriber acquisition,
distribution, advertising

fixed-line market
convergence and
substitution offers


Regulatory
environment

universal service




National regulator’s
activity and agenda,
dispute resolutions
Licences held and
specific obligations









Achievability of
market share in view
of commercial and
network strategy and
competitive landscape
Review of the
subscriber base
segmentation
Achievability of
revenue and pricing
Tariffs and structures,
in view of market
prices and
affordability
Expected gross
margins: bottom-up
assessment and
benchmarking

Review of operations
and opex


OSS/BSS, network
management,
customer care and
enterprise IT



Retention,
acquisition &
marketing expenses



Cost of services and
interconnection



Staffing levels versus
subscriber forecasts
and reorganisation
plans



G&A and bad debt
expenses



Procurement and
quality assurance



Board, management,
agent and supplier
activities

Technology and capital
expenditure


Network capability and
technological roadmap



Capex breakdown and
timing of expenditure:
subscriber and
capacity forecasts
subscribers
geo-dispersion and
coverage
licence obligations
network service
strategy,
availability of
technology



Benchmarking of capex



Equipment allocation of
network expenditure
based on contract
prices versus estimates

Ref: 5445-66


Our general methodology

25

Analysys Mason can tailor its approach to the specific
needs of a due diligence


High-level red-flag report based on interviews and information
available from the data room



Short report focusing on key questions already identified during the
first phases



Review of management’s assumptions and key market and
profitability drivers



Full review of the management’s detailed operational plan



Development of company’s business plan
based on public information
integrating information from the data room
integrating inputs from other due diligence workstreams
(e.g, accounting, legal)
consistent with data from management interviews and with
the regulatory horizon
including sensitivities on key parameters highlighting critical
inputs



Comprehensive strategic review of the company going forward



Complementary and comprehensive technical due diligence report,
drawing on our expert technical and operations consultants



Due diligence documentation including bid book, information
memoranda, presentations to investors, market and business

models

Illustrative timeline of a due diligence
22-Feb
23-Feb
24-Feb
25-Feb
26-Feb
27-Feb
28-Feb
1-Mar
2-Mar
3-Mar
4-Mar
5-Mar
6-Mar
7-Mar
8-Mar
9-Mar
10-Mar
11-Mar
12-Mar
13-Mar
14-Mar
15-Mar
16-Mar

Potential deliverables

T F S SMTWT F S SMTWT F S SMTWT F

Due diligence
Management presentation
Data room
One-on-one
Site visits (on request)

<---------------

Submission deadline
Deliverables
Due diligence reports
Business plan validation
Preliminary valuation
Final Board presentation
Board meeting
Final documentation
Financing
Finalise financing case
Proposal to credit committee
Credit committee approval

<----------<----------<-----------

On-site presence

Indicative
range of
deliverables

Ref: 5445-66