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Thoughts on telecom M&A trends





Merger and acquisition activity in the telecommunications market slowed in 2023. Around the globe, such activity reached a mere $61 billion in deal volume, down 15% from 2022. 

Furthermore, the deal value numbers may be misleadingly high, because a single deal -- an outlier -- made them look respectable. Telecomm Italian agreed to sell its fixed network business to KKR and that is a $23.3 billion deal, almost two fifths of the whole.  

I'm sure the question on your collective mind right now is -- "Wait:  KKR is betting on old-school landlines?" 

But let us move on to another question. Why this decline in deal value? 

Here is a short answer. Interest rates have persisted at high levels for years now.  Central bankers stopped raising them, but this was a pause AT a high level, with the bankers taking a "high for longer" stance rather than "an even higher peak for shorter".  The plateau is more annoying that the peak would have been, if you are trying to get deals done with the telcos. 

In some areas increased capital spending on 5G and fiber network rollouts has increased the degree to which these companies are leveraged, leaving less liquidity for M&A.

Why does this matter?  If you aren't say, an M&A lawyer looking for the business? 

Well, it does confirm to me that my years as an anarcho-capitalist were not wasted and I'm not about to become a socialist central planner any time soon.  Because the above facts indicate to me who is in charge. It isn't the big corporate hotshots that the left loves to demonize.  Yes, they can be jerks but they are quite clearly dancing to the tune of the central banks, in the US to the tune of the Fed.

I can't help but think that if money and credit were not centrally planned matters, if they were subject to market forces themselves, mundane sounding things like the laying of cable and the transition to 5G would get done much more smoothly and efficiently than they are in the centrally-engineered context we actually have. 

New fiber cable should be laid down when and only when a rational enterprise determines that will make them more profit, at less risk, than other things the rational enterprise might do with the same money. The money for such a thing should be borrowed if and when the enterprise decides borrowing -- rather than, say, selling equity in itself --is the most market rational way of raising money. The processes described in the two preceding sentences are intimately connected.

The central bankers, both when they create easy money AND when they throttle back on it, harm the natural processes by which the forces of spontaneous order could otherwise make these decisions. 

 


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