Contact: Scott Denne
Vodafone picks up its second cable company in a year, spending $10bn on a cash- and debt-free basis on Spain’s Grupo Corporativo Ono amid an uptick of telecom consolidation in Western Europe. The deal has similarities to Vodafone’s $10.2bn purchase in June of Germany’s Kabel Deutschland.
Both transactions get Vodafone deeper into markets where it already offers some services, such as mobile and Internet access. However, the rationale for the two deals is different. While both add to the top line, the chance to grow revenue seems to be front and center in the Ono buy, where Vodafone sees an opportunity to market wireless services to the target’s customers and take share from Telefonica, which powers Ono’s existing mobile service, by transitioning those customers to Vodafone’s network. With the Kabel purchase, much of the logic for the deal came in the opportunity to lower costs by migrating Vodafone DSL customers in Germany onto Kabel’s coaxial network.
Vodafone’s move comes during a period of extraordinary consolidation of large telcos in Western Europe. So far this year, three telcos in that region have sold for more than $500m (including today’s announcement), for a total of $19.2bn of M&A. In all of last year there were four such transactions, combining for $32.2bn. In the preceding five years combined, such deals totaled only $22.2bn, according to The 451 M&A KnowledgeBase.
The hunt for additional revenue growth and cost savings comes as prices for wireless services in Europe are declining, and will continue to decline. The pricing pressure will amplify the need for further consolidation. In its most recent quarter, Vodafone’s own revenue fell 3.6% from a year earlier to $15.1bn, a drop that its management attributed to stiffer price competition. In Spain in particular, Vodafone’s revenue declined 14% due to increased competition from services offering combined wireless and wireline packages. Yankee Group, a unit of The 451 Group, anticipates that price squeeze in Europe will continue.
For more real-time information on tech M&A, follow us on Twitter @451TechMnA.