Telecom M&A Trends: Summer 2020
Published June 10, 2020
Meridian Capital’s Telecommunications M&A Update covers the market impact of COVID-19 on telecommunications service providers and vendors.
“Most service providers are handling increased requests for new and upgraded services; and reporting network traffic increases ranging up to 50% above normal.”
COVID-19 Underscores That Telecom is an Essential Business
The COVID-19 pandemic has driven Zoom video meetings from 10 million to 300 million sessions per day. Other video conferencing applications are likewise seeing greatly increased demand. The long-heralded vision that a substantial portion of employees will be working from a virtual home office has arrived, with Covid-19 exclamation points. Include streaming, cloud dependent apps, and traffic on virtual private networks, and it all adds up to greatly increased bandwidth demand.
Generally, the industry’s networks have held up well, with outages and slows remaining a rare occurrence. This is because carriers construct their networks to handle peak demand. Fortunately, there has been a balance between demand for streaming services and Internet surfing (mostly in the evening) and business usage (primarily daytime).
The 5G world ahead, with its huge bandwidth-eating applications, will place demands on many parts of the network beyond existing capacity. 4G or 5G, cable-TV, or fiber, all will need to be ready for this demand.
Most telecom businesses during Covid-19 have been designated as “essential.” This includes service providers, engineering and design firms, construction, and other businesses which are critical to the maintenance and expansion of the public networks.
Meridian surveyed vendors and service providers. Most service providers are handling increased requests for new and upgraded services; and reporting network traffic increases ranging up to 50% above normal.
Fulfillment firms, responsible for home and business installation and service, have added numerous Covid-19 protocols to protect employees and customers. In some cases, service calls requiring inside-the-home activity has been curtailed or streamlined; with the homeowner being directed to handle much of the inside requirement.
The installation and construction firms we spoke with all indicated they continue to be on or over budget for the year, with work in progress continuing unabated in most cases.
Some firms see Covid-19 fallout in the form of new business awards promised but delayed until later this year.
At Meridian Capital, we cover the telecommunications industry in which service providers and vendors will be increasingly important segments in the coming months and years. Private equity and strategic buyers are taking note of this fundamental shift in industry demand, and business owners and CEOs in the space are facing a critical strategic moment as the spotlight has been thrust upon their industry. Those who have a clear strategy and can prioritize the right growth initiatives will likely have access to capital to do so, as well as opportunities to grow inorganically through acquisition.
What We’re Reading
The Telecom Industry Is Proving Essential in The COVID-19 Response, Forbes
Takeaway: Telecom operators will continue to lead the effort for remote working, online learning, and social distancing as we transition into the “new normal.”
Telecom Sector Will Shine in Post Covid-19 Era, GlobalData
Takeaway: In the post COVID-19 era, telcos are expected to perform well as the world will be more connected and businesses better prepared for such calamities, bolstering the broader industry for sustained growth for years to come.
Market Impacts of COVID-19 on Telecom Service and Vendor Sectors
Essential Telecommunications Also Challenged by COVID-19
- Most telecommunications services are deemed essential and can continue operations
- Large impacts are felt across the sector as the increased demand for networking infrastructure and connectivity strain the work force and supply chain
The Telecommunications Industry is Likely to Evolve Because of COVID-19
- Service providers proved that they were well equipped to meet increased bandwidth demand with millions of employees and students working from home due to shelter-in-place and lockdown policies
- With businesses realizing employees can effectively work remotely, many expect a new hybrid-working environment to evolve, resulting in this increased bandwidth demand to be sustained
- Service providers will be forced to shift their attention to providing better home-based solutions
Historical Performance Indicates Strong Comeback Highly Probable
Telecommunications Index Metrics – Telecom Service & Vendors
Wireless Telecommunications Services
| Company | Current Closing Price | 52 wk. High | 52 wk. Low | Enterprise Value | Gross Margin | 1 Yr Rev Growth % | TTM Revenue | TTM EBITDA | Enterprise Value / TTM Revenue | Enterprise Value / TTM EBITDA |
|---|---|---|---|---|---|---|---|---|---|---|
| AT&T Inc. | $30 | $40 | $26 | $409,384 | 54% | 1% | $179,145 | $55,894 | 2.3x | 7.3x |
| Verizon Communications Inc. | $58 | $62 | $49 | $371,065 | 59% | 0% | $131,350 | $42,664 | 2.8x | 8.7x |
| T-Mobile US, Inc. | $87 | $101 | $64 | $163,652 | 60% | 3% | $45,031 | $12,494 | 3.6x | 13.1x |
Fiber Infrastructure and Broadband Services
| Company | Current Closing Price | 52 wk. High | 52 wk. Low | Enterprise Value | Gross Margin | 1 Yr Rev Growth % | TTM Revenue | TTM EBITDA | Enterprise Value / TTM Revenue | Enterprise Value / TTM EBITDA |
|---|---|---|---|---|---|---|---|---|---|---|
| Comcast Corporation | $38 | $48 | $32 | $287,166 | 69% | 10% | $108,692 | $32,738 | 2.6x | 8.8x |
| CenturyLink, Inc. | $10 | $15 | $8 | $46,642 | 55% | -4% | $21,982 | $8,442 | 2.1x | 5.5x |
| Cogent Communications Holdings, Inc. | $83 | $90 | $53 | $4,364 | 60% | 5% | $553 | $181 | 7.9x | 24.1x |
| Cincinnati Bell Inc. | $15 | $16 | $3 | $2,716 | 49% | 5% | $1,537 | $332 | 1.8x | 8.2x |
Wireless Towers
| Company | Current Closing Price | 52 wk. High | 52 wk. Low | Enterprise Value | Gross Margin | 1 Yr Rev Growth % | TTM Revenue | TTM EBITDA | Enterprise Value / TTM Revenue | Enterprise Value / TTM EBITDA |
|---|---|---|---|---|---|---|---|---|---|---|
| American Tower Corporation | $249 | $259 | $174 | $147,293 | 71% | 3% | $7,760 | $4,480 | 19.0x | 32.9x |
| Crown Castle International Corp. | $157 | $169 | $114 | $94,516 | 66% | 5% | $5,758 | $3,095 | 16.4x | 30.5x |
Engineering and Construction
| Company | Current Closing Price | 52 wk. High | 52 wk. Low | Enterprise Value | Gross Margin | 1 Yr Rev Growth % | TTM Revenue | TTM EBITDA | Enterprise Value / TTM Revenue | Enterprise Value / TTM EBITDA |
|---|---|---|---|---|---|---|---|---|---|---|
| AECOM | $31 | $52 | $22 | $9,009 | 5% | -4% | $16,577 | $244 | 0.5x | 36.9x |
| Quanta Services | $34 | $44 | $24 | $7,414 | 13% | 4% | $12,069 | $818 | 0.6x | 9.1x |
| MasTec | $38 | $74 | $23 | $5,043 | 15% | 1% | $7,081 | $801 | 0.7x | 6.3x |
| KBR | $21 | $32 | $12 | $4,450 | 12% | 12% | $5,836 | $328 | 0.8x | 13.6x |
| Dycom Industries | $29 | $61 | $12 | $2,217 | 17% | 3% | $3,320 | $266 | 0.7x | 8.3x |
| MYR Group (NAS:MYRG) | $24 | $38 | $16 | $698 | 11% | 28% | $2,122 | $108 | 0.3x | 6.5x |
Notable Telecommunications Subsector Transactions
Engineering and Construction Services
Sustained deal flow for engineering and construction services proves the resilience of the sector
Broadband Providers
Promise of 5G technology underscores the growing demand for consumer connectivity, resulting in strong private equity interest in broadband providers
Recent Telecommunications Service and Vendor Transactions
| Date | Target | Buyer | Description | EV ($M) | EV/ Rev. | EV/ EBITDA |
|---|---|---|---|---|---|---|
| May-20 | Inviacom, Inc. | GI Partners, Single Digits | Wireless internet networks, VoIP, and training. | |||
| May-20* | Network Business Systems (ISP Business) | Nextlink Internet | Internet services based in Geneseo, Illinois. | |||
| May-20 | Vergent Communications, LLC. | Clairvest Gr., Meriplex Comm. | Telecom. and managed cloud services. | |||
| Apr-20 | Neutrona Networks Int. LLC. | Transtelco | Telecommunication network services. | |||
| Apr-20* | FamilyView Cablevision | Vyve Broadband | Broadband telecommunications services. | |||
| Apr-20 | Pearce Services, LLC | New Mountain Capital | Eng., maint., and upgrades for networks. | |||
| Apr-20 | Knight Enterprises Inc. | Mill Point Capital | Communication infrastructure services. | |||
| Mar-20 | Illinois Network Alliance, LLC. | Bluebird Network, Macquarie AM | High-speed broadband and fiber-optic. | |||
| Mar-20 | nexVortex, Inc. | BCM One, Thompson St. Capital | Cloud communication services. | $40 | ||
| Mar-20 | Atlink Services LLC | cec, Hinton Telephone Company | Fixed-wireless internet. | |||
| Mar-20 | FibAire Communications, LLC | Boston Omaha | Broadband internet services and Telephone. | |||
| Mar-20 | Inseego Corp. | Mubadala Investment Company | Wireless broadband access services. | |||
| Mar-20* | Jaguar Communications, Inc. | Metro-Net, Oak Hill Capital | Advanced telecommunication services. | |||
| Mar-20 | Zayo Group, LLC | Ardian, Digital Colony, EQT, Fisher Lynch | Communications infrastructure. | $20,019 | 7.7x | 17.1x |
| Mar-20 | Glow Networks, Inc. | Altruist Technologies | Consulting, engineering, and network services. | |||
| Feb-20* | Xplornet Communications, Inc. | Stonepeak Infra. Partners | Wireless broadband to users in Canada. | $2,000 | ||
| Feb-20 | QWireless, LLC | Watch Communications | Broadband internet services. | |||
| Feb-20* | En-Touch Systems, Inc. | CapitalG, RCN, TPG Capital | High-speed internet, digital TV, and phone. | |||
| Feb-20 | Silo Wireless, Inc. | Xplornet, Catalyst, Werklund, Sandler | Broadband services in Canada. | |||
| Feb-20 | CMS Wireless, LLC | Enertech Holdings | Wireless telecommunications construction. | $18 | ||
| Feb-20 | Comm. Tech. Services, LLC | Astra Capital | Converged Wireless services. | |||
| Feb-20* | Primelink, Inc. | Antin Infra., FirstLight Fiber | Voice and data services. | |||
| Feb-20 | Electronet Broadband Communications | Hargray, Redwood, Stephens, Pritzker | Fiber-based broadband. | |||
| Feb-20 | Openface, Inc. | Beanfield Metroconnect, Digital Colony | Fiber-based telecom services to businesses. | |||
| Jan-20 | Fatbeam, LLC | SDC Capital Partners | Fiber-based solutions. | |||
| Jan-20 | Rascompany | Affluence | Consulting engineering firm. | |||
| Jan-20 | Summit Broadband, Inc. | Grain Management | Broadband communication services. | $333 | 6.1x | 21.0x |
| Jan-20 | Arrow Business Comm. Ltd. | MML Capital Partners | Communication services. | $65 | 2.3x | |
| Jan-20 | Sit-Co, LLC | Watch Communications | Telecommunication services. | |||
| Jan-20 | Cedar Holdings Group Co., Ltd. | Ting | Telecommunication services. |
Meridian Capital's Telecom Transaction Experience
*Note: Includes transactions completed by Meridian bankers while at previous firms
