It has been said that telecommunications and information technology have advanced the world beyond imagination.The telecommunications industry, being at the heart of several homes, organizations, and institutions, is very competitive owing to its constant evolution to meet the emerging needs of its consumers. This era of digitalization has forced telecommunication companies to take steps to not only stay afloat but succeed in the face of the fast-paced evolving nature of the sector.
Telecommunication companies are turning to Mergers and Acquisitions as one of the solutions for them to thrive. A merger is the corporate marriage or fusion of two existing companies into a new company or the absorption of one company by the other. In contrast, an acquisition is the adoption or takeover of a target company by the acquiring company.
The rapid growth of wireless communications has also created an incentive for merging or acquiring telecommunication companies to acquire other companies that complement their existing strengths in the hope of stimulating corporate synergy. These companies consider merging or acquiring another company as a strategic tool to enhance their performance, however, the end is not always fruitful.
These mergers and acquisitions remain of interest as the telecommunication sector is one of the principal contributors to the economy of
Why companies opt formergers andacquisitions
In
Companies get involved in mergers and acquisitions to have a competitive edge in the market, greater financial strength for both companies involved in the transaction, and greater access to new markets, to help ensure business continuity and allow a company to reach a wider market of consumers.
By engaging in a merger or acquisition, a telecommunication company enters a new market where it does not need to start afresh but will rather thrive on the back of the reputation and customers of the target company or merging companies. When companies come together, everything is maximized including assets, financial strength, and human resources. A company that may have been struggling will likely have its fortune turned around as there will be an injection of capital.
In
The state ofmergers andacquisitions in
In 2006,
This allowed
Vodafone Ghana
Another acquisition that took place was that of Vodafone Ghana which acquired a 70% stake in
Vodafone Ghana after the acquisition had the number of mobile phone subscribers increase. By
Airtel
The next was the acquisition of the Zain group by Bharti Airtel in 2010. This move by Bharti Airtel was not peculiar to
The Zain group entered
AirtelTigo
From the acquisition in 2010, Bharti Airtel seemed to be making steady progress. In 2017, they merged with Tigo in a bid to increase their share in
It was presumed that once the merger was completed, the fate of the company would change in a positive direction. This has not been the case. In 2020, the company announced that they were leaving the country and by
It is worth noting that what is happening between Globacom Ghana and Airtel Tigo cannot be considered either a merger or an acquisition at this stage. Publicly available information indicates that it is an agreement between the parties to permit
Telecel/Vodafone
The most recent acquisition in the telecommunication sector is that of Vodafone Ghana by the
By taking over Vodafone's assets, Telecel will need to introduce highly innovative solutions to drive subscriber growth on all fronts and succeed in
Mergers and acquisitions in
Challengeswith mergers and acquisitions inthe telecomsindustry
Among the factors accounting for the reduced success of mergers and acquisitions could be the lack of proper integration planning which summarizes how and when resources, assets, and processes of the acquiring and acquired companies will be combined to achieve the goals of the deal. This applies both operationally and culturally. The lack of consideration of the cultural differences of the companies includes the way employees work. While one company will have its staff being entrepreneurial and innovation-focused, the other company may have a more traditional and results-driven staff. Failure to provide a detailed integration plan in place when the transaction is made may lead to the companies involved functioning separately for longer than anticipated, resulting in increased costs.
Varying degrees of shareholder participation following a merger or acquisition could adversely affect growth of a company. . Such behaviour causes progress to stall as full participation is needed to make certain improvements. An example is the complaint made by Vodafone Ghana against the government of
An overly optimistic presentation of the financials of a company can lead to the failure of a merger or acquisition. Some companies seeking to acquire or merge, pay an extravagant purchasing price for the target company and then the transaction ends up not delivering the expected benefits. Companies may not sufficiently factor in other expenses they must incur during and after the merger or acquisition such as redundancy packages, system upgrades, regulatory costs, the building and maintenance of towers, and other expenses. Such spending causes scarcity, restricting the use of the money when it is most needed. It could lead to insolvency in extreme cases.
Transacting companies must painstakingly undertake due diligence checks as certain companies may put up a good front when they are struggling financially. Due diligence covers checks concerning capital expenditure, regulatory issues, market dynamics, intangible assets, financial statement of the company, legal structure of the economy, the business, statutory regulations, list of legal cases filed against the company, partner agreement, and intellectual property regulation, the salary of employees and chances of an increase in salary, etc. Failure to conduct sufficient checks or insufficient disclosure of information could lead to the companies misunderstanding the nature of a deal, the risks involved, and whether the deal fits with their portfolio. In the end, this will lead to the total failure of the transaction.
Overestimating synergies that is, the value from the alliance before an acquisition or a merger can be another cause for a pitfall. Synergy may be hard or soft. The former is also known as cost synergy and involves cost-cutting measures and expansion strategies designed to maximize value. Soft synergy enhances the revenue of companies. A small degree of error in calculating synergy could cause the transaction to malfunction of the merger or acquisition transaction.
A significant issue in mergers and acquisitions in the sector relates to tower infrastructure. Over the years telcos have sold off or leased the maintenance and operations of the tower sites to third party entities whose main line of business is the ownership, leasing and maintenance of towers. In 2010,
If these issues are not addressed before a merger or acquisition occurs, it is likely the merger or acquisition will not be successful.
The Role of the Regulator:
In 2022, the Authority published "Guidelines for mergers and acquisitions of network operators, frequency authorization holders, and other communication service providers" premised on sections 5 and 10 of the Electronic Communication Act, 2008 (Act 775).
The objective was to have a clear regulatory framework for the industry and investors to assist parties concerned to make informed decisions on merger and acquisition activities, particularly as they relate to network operators.
Before the publication of these guidelines, there was no clear-cut process to follow. This does not put the failure of such mergers and acquisitions on the ]Authority. However, due to the lack of guidelines, in some instances, there were delays with the final approval of the transaction. Such delays, may cause the inapplicability of time bound research done in furtherance of the transaction. The guidelines as provided by the Authority will provide a framework for decision-making and enhance the appropriateness of the process.
Conclusion
Overall, Mergers and Acquisitions are great business tools when used right. However, like any business transaction risks have to beminimized and companies must do all the groundwork needed. A view espoused in the
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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