Dangers lie ahead as M&As surge with Oberthur, Intel, HP fighting for a technology edge
London, UK. June 16, 2015: Last year saw global TME (telecoms, media & entertainment) mergers & acquisitions (M&A) reach US$34.5 billion*, and this trend is predicted to increase in 2015. Among others, Oberthur is buying OTA clients and expertise, Intel sees IoT potential in Altera, while HP is acquiring ConteXtream to accelerate NFV adoption. But experts are urging firms to understand the target business before they buy.
Digital security solutions provider, Oberthur Technologies (OT), has completed its acquisition of Prodo Telecom. Prodo is one of the few companies exclusively specialising in Over-The-Air (OTA) platforms.
These allow mobile operators to update SIM (subscriber identity module) and embedded cards during their lifecycle, relying on short messages and data connections, minimising card replacement costs, optimising their roaming services and providing new value-added services to their customers.
Since its creation in 2001, Prodo Telecom has become a technology leader thanks to its next-generation, modular and lightweight product. Prodo’s 50 reference clients worldwide are mainly comprised of established mobile network operators (MNOs) ranging from small-sized to tier-1 groups.
Why Intel is acquiring Altera Corporation
Intel has agreed to buy Altera Corporation for US$54 a share (approximately $16.7 billion) making this Intel’s largest purchase. As Tom Hackenberg, principal analyst, embedded processing for IHS says, “Intel is the largest supplier of microprocessors (MPUs) in the world, with overall semiconductor revenues nearing $50 billion in 2014 and MPUs comprising 80% of that revenue. While not as large as Intel, with $2 billion in 2014 revenues, Altera is the second-largest supplier of programmable logic devices (PLDs) and system-on-chip (SoC) field programmable gate arrays (FPGAs).
Demand for desktop PCs and forecasts for portable PCs, Intel’s largest MPU markets, have slowed in recent years, largely through the advent of smartphones and tablets. Communications infrastructure and data centre equipment, however, make up some of the largest synergistic markets for Intel and Altera. Intel is already the leading supplier of high-performance wired and wireless telecommunications infrastructure processor solutions and — with an increasing market for IoT connected devices — these markets provide even greater opportunity for the right solutions. Altera’s position as a strong supplier of broadband, networking and telecoms solutions was likely a crucial consideration for Intel, when the company decided to purchase Altera.
ConteXtream’s SDN controller platform ‘complements’ HP OpenNFV
Saar Gillai, SVP and general manager NFV at Hewlett-Packard Company, also announced recently that HP has agreed to acquire ConteXtream, a provider of OpenDaylight-based, carrier-grade SDN fabric for NFV, and a current HP OpenNFV partner. Headquartered in Mountain View, California, ConteXtream’s solutions allow service providers to create a more flexible and programmable network through an SDN/NFV model. Its open SDN controller platform is said by HP to complement the latter’s NFV expertise as well as telecommunications and IT experience.
ConteXtream’s scalable and open and standards-based technology delivers innovative capabilities like advanced service function chaining, and is deployed at a number of major carrier networks across the globe. It connects subscribers to services, enabling carriers to leverage their existing standard server hardware to virtualise functions and services.
ConteXtream’s SDN controller platform complements HP OpenNFV solutions and, says Gillai, “aligns with NFV’s evolution as an open source-driven architecture. With this acquisition, HP will increase its involvement in and contribute key ConteXtream capabilities to the OpenDaylight community and accelerate delivery of an open source-based, carrier-grade SDN controller.”
When the transaction closes, ConteXtream will become part of HP’s Communications Solutions Business. The company’s current CEO, chairman, and co-founder, Nachman Shelef will continue to lead the ConteXtream business within HP reporting to Saar Gillai.
Make sure you understand new business areas
A study of 100 senior corporate executives by global law firm Reed Smith, in partnership with Mergermarket, reveals that 84% of technology, media and entertainment (TME) companies expect to see more cross-sector convergence M&A deals over the next two years.
The report, entitled Wired up: The convergence of technology, media and entertainment, explains the changing M&A landscape for TME firms. This is being driven by an increasingly fierce battle fought by TME firms who are attempting to gain a competitive edge in the market. Last year saw TME deals amounting to US$34.5 billion, and this trend is predicted to increase further.
The Wired up report also shows that TME companies seeking growth are increasingly crossing borders, with 57% saying their next acquisition is likely to be outside their home market. Of those businesses in search of cross-border opportunities, 37% say they are most likely to target Asia-Pacific, followed by Western Europe (23%) and North America (17%). These expectations must be set against the need for firms to understand the political and regulatory risks in the target markets.
This desire to converge is not limited to the global giants in the industry, say the report’s authors. There has been a recent upsurge in quad-play deals, in which communication service providers (CSPs) seek to become a one-stop shop for TV, broadband, fixed and mobile telephony.
Michael Young, corporate finance partner at Reed Smith, explains: “With increased cross-border convergence activity, companies must be prepared for the regulatory challenges that will result as they move from one jurisdiction to another. Local guidance, whether that be legal, commercial or financial, thorough due diligence and thoughtful deal structuring is critical to the success of these transactions.”
Nick Cheek, global managing editor of Remark, the events and publications division of the Mergermarket Group, adds: “In the face of aggressive and agile competition, trusted business models can no longer be relied on. For many companies, survival increasingly hinges on developing capabilities beyond their traditional core.”