Global M&A activity in the technology, media and telecommunications industry reached an all-time high of 3,389 deals in 2018. The year was marked by several of the largest merger valuations in history, even though 70% of deals were for less than $100 million, demonstrating that much of the M&A activity was driven by smaller companies. This M&A activity is expected to remain strong and could increase even further in 2019 as the entire industry is set to be impacted by the implementation of 5G wireless technology. 5G – or fifth-generation – network technology is the newest iteration of mobile wireless technology, with speeds up to 200 times faster than current networks. These exponentially faster speeds are expected to drive significant consolidation and capital expenditures as market actors both large and small jockey for position in a drastically new environment. Verizon and AT&T’s expenditures on their 5G networks alone will amount to $35 billion and $40 billion, respectively, which will require huge amounts of resources, expertise and partnerships to implement.
The launch of the previous generation of mobile wireless technology, 4G, is estimated to have contributed more than $150 billion to U.S. GDP growth. Expectations for 5G are well in excess of that benchmark – an estimated $40 billion in Canada alone – and will significantly impact all aspects of the economy, including M&A, in the years to come.
Canada is expected to move more slowly than the U.S. in implementing the new networks, waiting until 2020 to auction off the parts of the wireless spectrum on which 5G technology will operate. However, this delayed launch date will still make Canada one of the first five countries to make the spectrum available for widespread rollout of the new system.
The impact of 5G is expected to fuel M&A across a range of industries, including real estate investment trusts (REITs) that invest in the fibre networks, and automation and robotics in healthcare and mining. Cable companies own much of the fibre network infrastructure that will play a role in the implementation of 5G and there may be increased M&A activity from those companies as they increasingly seek to compete in the wireless space and as wireless companies try to create their own infrastructure.
As mentioned above, 2018 was a record year for large-value deals. However, the large capital expenditures required for 5G implementation could mean further consolidation of the industry which is already dominated by a few large companies. For example, in a rapid about-face, the U.K. government has indicated that it would support further consolidation of the four U.K. telecommunications companies only two years after blocking a similar combination.
The impact will also be seen outside of technology-related industries. As ever-larger deals lead to more data for buyers to analyze, 5G technology has the potential to allow for faster processing of the data, allowing for more comprehensive and faster analysis of targets. Combined with data-driven technologies such as artificial intelligence, which we analyzed in a previous post, the ways in which M&A is performed, from communications to analysis and implementation, could rapidly change as new tools are developed to operate within the new networks. The increased efficiency, when combined with the preeminent importance that data generation and analysis plays in modern business, means that 5G networks will affect a vast array of business processes and M&A will likely reflect this disruption as companies plan and adapt to this rapidly changing reality.
The author would like to thank Jamie Parker, articling student, for his assistance in preparing this legal update.
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