TELECOMMUNICATIONS MERGER & ACQUISITION PERSPECTIVES 2019

TELECOMMUNICATIONS MERGER & ACQUISITION PERSPECTIVES 2019

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TELECOM M&A PERSPECTIVES

OVERVIEW & OUTLOOK

Over the last several years, demand for fast and reliable connectivity has grown exponentially. The telecom industry has experienced rapid convergence in order to appeal to the digital age and is expected to continue to benefit from the rapid development of mobile devices, the increased popularity of smart phones, the internet of things (IOT) and connected cars.

In the third quarter of 2019, the Department of Justice approved the long-awaited $26 billion merger of T-Mobile and Sprint. The merger was also approved by the FCC in early November but still faces headwinds from states suing to block the transaction. Other notable large transactions include U.S. communications infrastructure provider Zayo Group Holdings being taken private by Digital Colony and EQT in an $8.2 billion cash deal. The deal is expected to close in the first half of calendar 2020. Concurrently, several smaller service providers are also coming together in order to better compete with some of the dominating telecom players and increase their reach. As several large consolidations continue to play out as well as the rollout of 5G, the telecom industry is seeing several opportunities to bolster current revenue sources as well as create additional streams.

The volume of mergers and acquisitions in the telecommunication services industry decreased 9% in 2019 compared to 2018, in large part due to several mega-mergers announced during fiscal 2018. Despite lower volume, the median capital invested increased 31% from $32 million in fiscal 2018 to $42 million in fiscal 2019. Additionally, the median capital invested has increased quarter over quarter throughout the entire fiscal 2019 to date. Much of this comes as a result of some larger mergers characterizing the M&A environment for telecom service providers. IBISWorld expects the industry to experience even further consolidation over the next five years to 2024.

CONTENTS

Transaction Activity

Industry Highlights

Industry Segment Trends

Wireless Telecom Services

Fiber Infrastructure & Broadband Services

Wireless Towers

Data Centers

Cable Service Providers

BKD Services

About BKD Capital Advisors

ABOUT BKDCA

Founded in 1994, BKD Capital Advisors helps companies and stakeholders go beyond their numbers by creating value through investment banking solutions that include mergers, acquisitions, sales, recapitalizations, management buyouts and financings.

Telecommunication Services Deals

Median Capital Invested

Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019

12 11

13

24

23

25 21 17 20

Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019

$100 $30

$42 $8

$28 $54

$247 $267 $292

Sources: S&P Capital IQ, IBISWorld Wireless Telecommunications Carriers in the US, and Deloitte 2019 Telecommunications Industry Outlook.



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TELECOM M&A PERSPECTIVES

OVERVIEW & OUTLOOK, CONT.

160%

Relative Stock Price Index

150%

140%

130%

120%

110%

100%

90%

80%

70% 12/31/18

3/31/19

6/30/19

9/30/19

12/31/19

S&P 500

S&P Telecom Select Industry Index

Wireless Telecommunications Services

Fiber Infrastructure & Broadband Services

Wireless Tower

Data Center

Cable Service Provider

30.0x 25.0x 20.0x

EV/EBITDA Multiple YOY Comparison

26.5x 20.7x

23.8x 18.9x

15.0x

10.0x 5.0x

8.2x 6.9x

6.9x 6.8x

0.0x

Wireless

Fiber Infrastructure

Telecommunications & Broadband

Services

Services

Wireless Towers

Data Centers

Source: S&P Capital IQ

12/31/2018 12/31/2019

11.6x 8.9x

Cable Service Providers



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TELECOM M&A PERSPECTIVES

TRANSACTION ACTIVITY

Telecommunication Industry Median EV/Revenue Multiples

4.3x

3.5x

3.5x

2.9x

1.9x

2.0x

1.4x 1.7x 1.7x 1.7x

2.1x 1.9x 1.6x

1.6x

0.9x

Telecommunication Industry Median EV/EBITDA Multiples

15.5x

8.4x 7.8x 8.3x 7.1x 9.7x 6.2x 8.5x 5.8x 4.5x

11.1x

9.5x

7.8x

6.6x

3.8x

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

2016

2017

2018

2019

Source: S&P Capital IQ , includes all telecommunications services deals

INDUSTRY HIGHLIGHT

Cross-Border Investment & Peak Consolidation

The wireless carriers industry has witnessed a worldwide trend toward cross-border investments. The clear trend toward cross-border activity is expected to persist in the face of continued global uncertainty. Core drivers of this trend include the uncertainty surrounding the U.S. ? China trade war, fueling European focused cross-border deals, and the desire to compete with superior technologies such as the roll-out of the 5G network.

As a result, Europe experienced a wave of M&A activity in 2018 that has persisted throughout 2019. This cross-border investment trend is also fueled by the industry's peak consolidation world-wide. Consolidation has led the number of enterprises in the sector to decline at a CAGR of 2.2% over the past five years to 2019. With organic growth opportunities narrowing in the marketplace, in order to remain competitive and increase market share many U.S. players are forced to look overseas for further investment and merger activity.

Source: IBISWorld



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TELECOM M&A PERSPECTIVES

TRENDS FOR WIRELESS TELECOMMUNICATION SERVICES

Telecom service providers seeking to solve how to profitably manage and operate the next-generation 5G network in their historically high-fixed cost environment have sought to diversify, with traditional wireless telcos entering the content and cable markets in historic mega deals while the cable companies enter the wireless markets. With the continued roll out of 5G, expect to see acquisitions of products and services enabled by the 5G network take the spot light.

Select Transactions

In July 2019, the Department of Justice (DOJ) formally approved the Sprint (S) and T-Mobile (TMUS) $26 billion merger. Additionally, in early November 2019, the FCC voted in favor of the merger. However, the nation's third and fourth largest wireless providers still face a lawsuit from several state attorney generals trying to block the merger before the deal can officially go through.

Dish Network has agreed to take $5 billion worth of wireless assets off of Sprint and T-Mobile's hands. This deal with satellite TV provider Dish likely gave the DOJ what it needed to give its blessing for the $26.5 billion mega-merger. The deal will cost about $1.5 billion for prepaid mobile businesses and $3.5 billion for spectrum, according to a report from Bloomberg.

Peppertree Capital Management agreed to acquire more than 1,000 wireless towers from AT&T for approximately $680 million in late October 2019 in an aim to cut its debt.

In February 2019, Amazon (AMZN) announced a $97 million acquisition of Eero Inc., a mesh WiFi systems development company, in what was considered to be a "fire-sale deal"?far less than the approximate $150 million the company raised as a start up.

U.S. Wireless Telecommunications Services Transactions 2009 ? 2019

32

25

19

15

16

21

19

10

13

11

12

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Public Comparables

Company Wireless Telecommunication Services AT&T Inc. Verizon Communications Inc. Sprint Corporation T-Mobile US, Inc.

Ticker

T VZ S TMUS

Price (in US dollars)

12/31/2019

$38.94 $61.05 $5.23 $77.86

52 Week

High

Low

$39.70 $62.22 $8.06 $85.22

$28.09 $52.28 $5.15 $62.41 Median Mean

in millions of dollars

TTM

TTM Enterprise

Revenue EBITDA

Value

182,365 131,374

32,979 44,565 87,970 97,821

54,028 48,698 11,833 12,702 30,700 31,815

487,268 383,392

62,055 109,507 246,450 260,556

EBITDA Margin

29.6% 37.1% 35.9% 28.5% 32.8% 32.8%

EV to Sales

2.67x 2.92x 1.88x 2.46x 2.56x 2.48x

EV to EBITDA

9.02x 7.87x 5.24x 8.62x 8.25x 7.69x

Source: S&P Capital IQ



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