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Deloitte.Mavericks
West Zone
Team : Grey Matter
Ashwin Jain
Harsh Tewari
Mayank Agrawal
Recommendations
3. Geography Analysis 4. Financial Analysis1. Internal Growth
Analysis
2. Technology
Analysis
Diversify due to industry
saturation, Utilization of
existing assets
Geographic expansion
study for growth avenues
Competitive Grid Matrix
for the 4 targets
Parameter identification
Assessment of technical
capabilities of the targets
on every parameters
Forward Integration
(M2M,IOT,VOIP) are the
future revenue drivers
US and Czech Republic
telecom markets are
flattening
Namibia has strong
Macro-economic
advantages but its
regulatory environment is
regressive
Financially viable
opportunities & accurate
valuation
Strategic
objectives
Analysis
Insights
1. According to Technology Analysis: N Zone is the most viable acquisition target, Financial Analysis reveals its value as : ,smooth
integration is expected if due diligent process is followed
2. According to Geography Analysis ASA Towers is the most viable acquisition target, Financial Analysis reveals its value as : ,smooth
integration is expected with a proper integration plan in place focusing on the cultural risks
4. Integration Analysis
SMB’S are a high
potential target as their
operations expand
Fast adoption of LTE/4G
services is critical for US
Telco’s growth
NZone stands out as the
most aligned business
(technologically) with our
strategic objectives
ASA Towers has the
advantage for gaining
capibilties for new
products & services
Telemo Services will
provide no technological
advantage
EBIDTA margins of ASA:
High Growth
EBIDTA margins of
NZone: Steady Growth
Terminal Growh Rate(for
long term growth) is
highest for ASA Towers
Inc.
Telemo Services’s
valuation is almost 7
times that of US Teclo
NZone: Low
regulation/legislation risk &
low customer retention risk
Synergy Capture is a low
intensity risk for both
selected businesses
ASA Towers: Low target
identification risk but high
cultural risk
Accurate due diligence
process is very critical for
success of the M & A
High speed network
deployment through Co-
location & managed
rooftop systems
Expand services in high
growth regions
Smooth Integration in
M & A
Identifying evaluation
layers for analysis
Assessed Geographies
on Macroeconomic,
Regulatory, Financial &
Technological
environment
Rank the geographies on
the basis of alignment
with our core strategy
Analyzed the Free Cash
Flow as per the
projections & industry
standards
Evaluated targets on
market multiples derived
from past deals
Integration Heat Map
analysis
Assessing the targets on the
basis of standard risks &
considerations in M & A
deals in telecom sector
Devised solutions/way outs
to ensure mitigation of these
risks
Evaluated EBIDTA
margins(the most
important ratio for
telecom sector)
WiMax, Optical Fiber &
Co-location are
promising
Argentina tops the list in
Technological potential &
Financial environment
Analysis of Technology
trends globally to figure
out new avenues for
capabilities growth
Analyzed Service
expansion model for US
Telco utilizing existing
capabilities
Executive Summary
ColocationIn-Building Systems/
Distributed Antennae Systems
Fibre OpticsFTTx - FTTP, FTTN
• High Speed network deployment
• Feasible for SMBs, Hospitals, other public spaces
• 2x-4x improvement in throughput as a result of Macro-offload
• Shift from HD to 4K & popularity of streaming services has
enhanced the demand for fibre
• Cost feasible in densely populated areas, most sustainable
solution, High speed capability, reliability & security
• AT & T planned to rollout Fttp in 100 American cities
• Aimed at only the affluent top 20-25% market which
contributes to the major revenue
• Fibre will be very competitive in high population regions
• High data costs even with the latest tech (4G/LTE)
• Low Speed of deployment due to infrastructure complexities
• Feasible for all but only in long term
• Very high CAPEX despite low cost of fibre
• Economies of scale may lead to consolidation
• Companies from multiple sectors – Telecom, Entertainment,
Internet technology are developing their capabilities in this space
• Cost feasibility is driven by population density
Wi-Max• Medium/High Speed of deployment
• Feasible for SMBs, rural areas, hospitals, other public spaces
• May operate in the unlicensed spectrum or 2.3 Mhz
• Sprint Nextel had acquired the required 2.3 MHz spectrum & also
acquired Clearwire, but later discontinued it in favour of LTE
• Speed capability is only upto 4Mbps, way lesser than LTE
Up-gradationLTE/4G/5G
• Mobile operators, equipment/device manufacturers are pushing
up-gradation to LTE & eventually 5G
• Feasible for SMBs, rural areas, hospitals, other public spaces
• May operate in the unlicensed spectrum or 2.3 Mhz
• 5G is a distant possibility i.e., only after 2020
• Shrinking need for mobile towers due to technological efficiencies,
tower sharing, consolidation & rise of optical fibre adoption
• LTE requires VoLTE to provide voice capability to the network
Forward IntegrationIoT, M2M, VoIP, OTT
• Internet technology companies are integrating backwards to
create a favourable environment for their products & services
thus expanding the market
• Another 10 years for mass adoption of IoT & M2M
• High technical expertise & short technology cycle
• High security & reliability systems required
Geographical
ExpansionEmerging markets
• High mobile & internet penetration rate in emerging economies
• Opportunity to reduce exposure to the saturated market of US
• Poor infrastructure, unfavourable regulatory environment, unstable
government & high rate of inflation growth
Growth Avenues for US Telco
Co-location IoT, VoIP, VoLET & OTT services
FTTx –FTTP, FTTN
Geographical Expansion Forward Integration
Smart Homes
Hospitals
Home /enterprise Smart Cell
Communications Tower
Fibre connections inside the building
Fibre connections inside the building
FTTN/FTTP
Submarine Cables
2G
3G
4G/LTE
5G
Leverage
expertise in ICT property operations to
accelerate the transition
transition
VoLTEservices
Target
Emerging economies in Latin
America, Africa & Asia
Macroeconomic Parameters
• Spectral availability
• Regulatory environment
• Mobile Penetration
• Disposable Income
• Competitive environment
• Tenancy ratio
• Double Tax Avoidance agreement
• Industry revenue growth
• Technology(3G/LTE/4G) adoption
rate
Businesses
Manufacturing
Logistics
Public spaces
Service Expansion
1. Smart cell receiver
installations on rooftops
boost speed 2x-4x times
2. High speed network
deployment
3. Best for SMB’s
Colocation services
1. Need for high quality
content, security &
reliability has triggered
the market share of FTTx
from 22% to 47%
2. Only Sustainable solution
due to lower price points
for customer in densely
populated areas
Optical fiber
1. Expanding to provide
services in the IoT, VoIP
& OTP space
2. Technical competency
which could be acquired
through R&D or through
acquisitions
Forward Integration
Expansion Avenues
Telemo ServicesBBA AfricaN ZoneCapabilities ASA Towers
Wireless Infrastructure
REIT Capability
Wireless Services
New Technologies
Diversified Portfolio
Clients
Alignment With
Strategy
Utilisation Of Existing
US Telco Infra
Cultural Fit
Smooth Integration
Value Creation
Opportunity For New
Products
Revenue Growth
No Experience
No Experience
Global Data, Locationbased services
Hi-speed internet,IOT services
From VOIP to IOT
Consumers, Businesses & Government
Co-Location services, In-building solutions
High Usability in providing Co-location and data
Same Culture
High- similar regulatory environment
Value for both
Interface services package for businesses
Initial increase then steady decline
No Experience
Leasing tower space
Mobile and internet services
3.75 G adoption
Mostly operator services
Majorly consumers & some businesses
Faint Alignment
No Usability
Less Cultural Alliance
Difficult
Intermediate value
B2C services like voice & data
Good Growth & then small decline
Operating Towers
Leasing Tower Space
Hi-speed internet, VOIP
Hi-speed network deployment
From Tower operation to VOIP
Majorly businesses & some consumers
Aligned on co-location and distributed antenna
Some Utility
Less Cultural Alliance
Intermediate
Value for both
Fibre connections & co-location services
Rapid Growth
Expert
Leasing. renting & operating
No Experience
Only Infrastructure services
Majorly infra but some other services
Businesses
Not Aligned
Some Utility
Better Cultural Alignment
Easy(same business)
Value creation is limited
Only In-building solutions
Steady Decline
Technical Evaluation Matrix
List important parameterson the capabilities front and measure
favorability of all the 4 proposed targets
Identify core parameters 1. Alignment with strategy
2. New technologies 3. Utilization of Existing US Telco Infra
4. Value Creation & New products
N Zone Communications, USProvides opportunity to integrate forward in
the home market targeting SMB’s and leveraging its user base to extend colocation
services
Shortlisting Targets
ASA Towers, ArgentinaProvides opportunity to extend US Telco’s
core capability (property operations) in South America and expansion plan
(colocation services) in the US
Favorable Not FavorableHighly Favorable
Assessing Competencies in
alignment with US Telco’s strategic
objectives
Regulatory environment :
Less Restrictive
LTE Spectrum available
Land Rates : $ 2813
Ease Of Doing Business
Rank : 121
No tax avoidance agreement
Technology Environment: Highly Conducive
Technological Adoption Rate: 47% 3G/4G
Technical Synergy: High Synergy
Scope Of Business: Only 5% 4G connections
Mobile traffic data increased 80% in 2015 YOY
Financial Environment:
Conducive
Industry Growth Rate: 5.5%in
2012
Capex as % of revenue: 23%
Operator market is fiercely
competitive
EBIDTA Margins: 31.7%
Macroeconomic Outlook:
Conducive
Fixed(wired) internet
subscriptions: 13.77%
No. Of Smartphones: 40%
Growth Of disposable
Income: 2.10%
Radio/T.V. penetration : 90%
/ 55%
Macroeconomic environment : Not Conducive
Fixed(wired) internet subscriptions: 17.25%
No. of Smartphones: 27.60%
GDP growth : -0.7%
Mobile Subscription: 162.53(per 100 users)
Financial environment : Less
Restrictive
EBITDA Margin : 27.12%
CAPEX as % of revenue: 25.7%
Full Competition
Regulatory environment : Liberal
LTE Spectrum available
Land Rates : $ 3384
Ease Of Doing Business Rank : 36
Double Tax Avoidation Agreement
Technological environment:
Not Conducive
LTE Penetration: 53%
Technical Synergy: Good
LTE Download Speed: 15Mbps
Similar business portfolio
Financial environment : Conducive
EBIDTA Margins: 54%
GDP Share: 2.9%
Capex as % of revenue: 52%
Operator Market has 2 big players
Macro-economic environment :
Highly conducive
Fixed(wired) internet subscriptions:
2%
Growth of disposable income:5.5%
Radio/TV penetration:78% / 86%
Regulatory environment : Restrictive
LTE Spectrum not available
Land Rates : $ 27.288
Ease Of Doing Business Rank : 101
No Tax avoidance agreement
Technological environment : Conducive
Technological Adoption Rate: 40% traffic on 4G
Technical Synergy: Good
Scope Of Business: Unique subscribers are 60%
Completely different portfolio
ArgentinaPros: Growing inter-country trade
relations
Cons: High inflation rate
Technology Penetration1. Argentina – Low
2. Namibia – Medium
3. Czech – High
4. US – Very High
Assessing Geographical
Expansion in alignment with
US Telco’s strategic objective
Industry Environment 1. Argentina – Conducive
2. US – Conducive
3. Namibia – Unstable
4. Czech – Unstable
Macroeconomic Environment1. Namibia – Growing
2. Argentina – Growing
3. Czech – Flattened
4. US – Flattened
Regulatory Environment1. US – Conducive
2. Czech – Conducive
3. Argentina – Beauracratic
4. Namibia – Restrictive
Shortlisting Targets
Technology environment : Conducive
Cellular M2M connections to increase at
22% CAGR
Technical Synergy: High
4G coverage at 98%
Technology Adoption Rate: 85% 4G
connections by 2020
Regulatory environment : Less
Restrictive
Less LTE Spectrum available
Land Rates : $ 18499
Ease Of Doing Business Rank : 7
Substantial Tax Benefits
Financial environment : Conducive
Industry EBIDTA Margins: 42.5%
CAPEX as % of revenue : 13.5%
Big operators like Verizon and OTT
players such as Microsoft exist
Macroeconomic Outlook: Conducive
Fixed(wired) internet subscriptions:
27.855%
No. Of Smartphones: 77%
Growth Of disposable Income: 0.10%
Radio/T.V. penetration : 90% / 55%
Geographical Evaluation Matrix
0
100
200
300
400
500
-40.00%
-20.00%
0.00%
20.00%
40.00%
2015 2016P 2017E 2018E 2019E 2020E
EBITDA Margin Revenue (in millions)
0
100
200
300
400
500
34.50%
35.00%
35.50%
2015 2016P 2017E 2018E 2019E 2020EEBITDA Margin Revenue (in millions)
Sensitivity
Analysis
Growth Rate Growth Rate
WA
CC
WA
CC
15.119 1.00% 1.50% 2.00% 2.50% 3.00% 3.50% 4.00%
8.00% 32.233 36.191 40.809 46.266 52.815 60.819 70.824
9.00% 22.716 25.479 28.636 32.279 36.529 41.552 47.579
10.00% 15.675 17.670 19.915 22.460 25.368 28.724 32.638
11.00% 10.335 11.817 13.463 15.302 17.372 19.718 22.398
12.00% 6.210 7.334 8.570 9.937 11.455 13.152 15.061
13.00% 2.975 3.843 4.790 5.828 6.969 8.231 9.632
14.00% 0.408 1.089 1.827 2.629 3.504 4.463 5.517
700.888 2.00% 2.50% 3.00% 3.50% 4.00% 4.50% 5.00%
8.00% 885.434 943.948 1014.164 1099.985 1207.261 1345.186 1529.087
9.00% 745.257 784.317 829.888 883.744 948.371 1027.360 1126.096
10.00% 642.423 669.706 700.888 736.866 778.841 828.447 887.975
11.00% 564.215 583.940 606.130 631.280 660.022 693.186 731.878
12.00% 503.033 517.685 533.965 552.161 572.631 595.830 622.343
13.00% 454.066 465.191 477.428 490.954 505.982 522.779 541.675
14.00% 414.123 422.725 432.108 442.385 453.689 466.184 480.067
Financial Synergy Expense Decrease Revenue Increase Efficiency
NZone Communications Inc.
Cost of leasing tower space would significantly come down Wireless service providers are expected to spend around $105 billion during 2015-25
Colocation solutions through in-building systems & high speed network services
ASA Tower, Inc. Sharing of cost efficient practices will decrease the cost involved in leasing space to wireless communications
Rapid growth in 4g connections in Argentina is a value driver
ASA Towers will gain from the expertise of the experienced management team of US Telco
Valuation
Value Weight
DCF 700.888 0.8 560.710
EV/EBITDA 1144 0.2 228.800
Total 789.510
Valuation (in millions)
Value Weight
DCF 15.119 1.00 15.119
Premium 20% 3.023
Total 18.143
Assumptions NZone ASA Towers
WACC10.% as the industry average
in USA11.03% as the industry average in
Argentina
Tax Rate 30.00% given 35.00% current corporate tax
Growth Rate3.00% the long term industry
growth rate2.57% the long term industry
growth rate
Population growth rate 1.70% 1.00%
Operating Expense includes COGS, selling & admin expenses, depreciation/amortization
• Valuation & Reporting format used is in accordance to the
standards prescribed by Uniform Standards of Professional
Appraisal Practice(USPAP)
• EBITDA growth is one of the key parameters in analysing any
business in this Industry. As per the given projections, Nzone
Communications and ASA Tower shows growth in the parameter
and this takes them ahead as the potential targets.
NZone Communications ASA Towers Inc.
Business Appraisal
Integration Heat Map - Key Concerns & Risks
Concerns NZone Communications - US ASA Towers, Inc., Argentina
Changing regulatory & legislative
environment
(1) Liberal regulatory reforms in US would help in smooth integration.
(2) Progressive Federal communications Commission
(1) No double Tax avoidance agreement. (2) Relatively higher LTE
spectrum up for sale by ENACOM.
Economic uncertainty (1) Saturated in mobile smartphone penetration. (2) Disposable
income growth of 2.1%.
(1) High market potential owing to 5% 4G & Fixed wired internet
subscription base of 13.77% (2). Disposable income growth of 0.1%
Improper target identification (1) Inaccurate capability assessment. (2) Short technology cycle in ICT
may render its expertise obsolete.
(1) Scale of operations and technological expertise in colocation
services and high speed network deployment
Inaccurate target valuation (1)Parameters deviating significantly from the industry standards (1) Parameters deviating significantly from the industry standards
Insufficient due diligent process (1) Inaccurate financial reporting. (2) Feasibility of B2B Solutions (3)
Lack of intellectual property in IOT, M2M and other technologies
(1) Ability to secure contracts in Argentina (2) Inaccurate revenue
projections
Failure to effectively integrate (1) Dissimilar products & services offered might pose difficulty in
integration (2) IT Systems integration(1) Varying Financial reporting standards (2) IT systems integration
Risks NZone Communications - US ASA Towers, Inc., Argentina
Achieving cultural fit (1) Difference in employee, managerial and organizational skills due to
business operational differences
(1) Cultural shift for deputed employees (2) Recruitment of cross
culture fit managers
Synergy capture (1) Expanding the scope of services for value creation (2) End-to-end
wireless solutions for SMBs
(1) Leveraging US Telco’s expertise in property operations combined
with ASA’s expertise in Colocation services
Workforce transition (1) Difference in Salesforce management due to varying nature of
services offered (2) Lack of technological expertise
(1) Rightsizing in both organizations (2) Requirement of developing
network in the market
Customer Retention (1) Service gaps due to management perception (2) Pricing strategy(1) In-appropriate consumer perception of a foreign brand (2)
Difference in pricing strategy in developed & developing market
Medium HighLow
Day 30Day 1 Day 60 Day 120 Day 180
Formulating an
integration planCommunicating the
integration plan
Project Prioritisation
Plan & Training
Measuring Success
& Resolving Issues
Continuing The
Momentum
• Define success for the
M & A
• Develop a detailed
integration plan
• Form a separate
integration team
having managers from
both organisations
• Customer Overlap
Analysis
• Synergy Identification
• Effective Communication
to all employees(both
acquirer’s and acquire)
regarding the plan
• Authorized Emails &
townhall meetings are the
most effective tool
• Desk Instructions to each
employee regarding their
KRA’s
• Change Management
measures for employees
• Detailed analysis of
the first project to be
implemented
• Sales Force Training
• Assigning managerial
roles to people from
both organisation to
lead the project
• Detailing of Product &
services to be offered
• Uniform reporting
methods to be put in
place
• Centralised ERP and
SCM modules
implementation
• Measure the success of the
integration plan by the
targets set at the start
• Measure the value created
& synergy levels for both
organisations
• Form a proper mechanism
for dispute redressal
because they are bound to
happen- Evaluate, Mitigate,
Act & Communicate
• Transition of full-time
integration management to
various owners
• Continued measurement of
success through
management
dashboards/reports
• Analysing the financials of
two quarters and planning
ahead
• Uniform IT,HR,Accounting
& resource allocation to be
put in place
• Achieving the full
cooperation of employees
for the future plans
Recommendations – Short Term & Long Term
Thank You.
Particulars (figures in Millions) 2015 2016P 2017E 2018E 2019E 2020E
Revenue 297 336 366 391 407 419
Operating Expense 202 228 249 266 277 285
EBITDA 104 117 128 137 142 147
EBIT 95 108 117 125 130 134
Depreciation/Amortization 9 9 11 12 12 13
Change in NWC 0.8 0.5 0.4 0.4 0.2 0.2
Capital Expenditure 20.8 23.5 25.6 27.4 28.5 29.4
FCF 53.9 60.6 66.9 71.7 74.3 77.2
Discount Factor 0.909 0.826 0.751 0.683 0.621
Present Value of FCF 55.091 55.289 53.869 50.748 47.935
PV of Cash Flows 262.932
Terminal Growth Rate 2.50% 3.00% 3.50%
Terminal Value 655.113 705.331 763.275
PV of Terminal Value 406.774 437.955 473.934
Total Enterprise Value 669.706 700.888 736.866
Industry EBITDA 11 Valuation
Co. EBITDA 104 Value Weight
Enterprise Value 1144 DCF 700.888 0.8 560.710
EV/EBITDA 1144 0.2 228.800
Total 789.510
Particulars (figures in Millions) 2015 2016P 2017E 2018E 2019E 2020E
Revenue 79 97 125 164 207 242
Operating Expense 65 85 99 133 176 194
EBITDA 36 42 45 66 87 109
EBIT 14 12 26 31 31 48
Depreciation/Amortization 22 30 19 35 56 61
Change in NWC 1.5 0.6 0.8 0.9 1 0.8
Capital Expenditure 19 17.5 20.1 27.9 26.9 21.8
FCF 11.02 20.06 15.78 27.28 49.18 71.04
Discount Factor 0.903 0.815 0.736 0.665 0.600
Present Value of FCF 18.11 12.87 20.08 32.69 42.64
PV of Cash Flows 126.387
Terminal Growth Rate 3.50% 4.00% 4.50%
Terminal Value 608.677 656.922 712.887
PV of Terminal Value 365.315 394.271 427.860
Total Enterprise Value 491.702 520.658 554.247
Industry EBITDA 12.9 Valuation
Co. EBITDA 36 Value Weight
Enterprise Value 464.4 DCF 520.658 0.8 416.527
EV/EBITDA 464.4 0.2 92.880
Total 509.407
Nzone Financial Analysis BBA AFRICA FINANCIAL ANALYSIS
Appendix I: Financials
TELEMO FINANCIAL ANALYSIS ASA TOWERS FINANCIAL ANALYSIS
Particulars (figures in Millions) 2015 2016P 2017E 2018E 2019E 2020E
Revenue 12 16 23 36 51 82
Operating Expense 16 22 29 40 50 80
EBITDA -3 -2 -3 -1 10 19
EBIT -4 -6 -6 -4 1 2
Depreciation/Amortization 1 4 3 3 9 17
Change in NWC 1.2 0.1 0.3 0.5 0.6 1.2
Capital Expenditure 4.1 3.9 8.3 11.6 8.7 9.9
FCF -6.9 -3.9 -9.5 -11.7 0.35 7.2
Discount Factor 0.901 0.811 0.731 0.658 0.593
Present Value of FCF -3.513 -7.706 -8.548 0.230 4.267
PV of Cash Flows -15.269
Terminal Growth Rate 2.00% 2.50% 3.00%
Terminal Value 48.200 51.275 54.733
PV of Terminal Value 28.565 30.388 32.438
Total Enterprise Value 13.296 15.119 17.168
Particulars (figures in Millions) 2015 2016P 2017E 2018E 2019E 2020E
Revenue 421 459 491 511 526 542
Operating Expense 278 303 324 337 347 358
EBITDA 177 193 206 214 221 228
EBIT 143 156 167 174 179 184
Depreciation/Amortization 34 37 39 40 42 44
Change in NWC 0.5 0.2 0.2 0.1 0.1 0.1
Capital Expenditure 8.4 9.2 9.8 10.2 10.5 10.8
FCF 140.93 153.96 164.27 170.64 176.39 182.14
Discount Factor 0.954 0.910 0.868 0.828 0.790
Present Value of FCF 146.87 149.48 148.12 146.06 143.87
PV of Cash Flows 734.404
Terminal Growth Rate 1.00% 1.50% 2.00%
Terminal Value 3794.023 4385.299 5185.506
PV of Terminal Value 2996.899 3463.947 4096.031
Total Enterprise Value 3731.303 4198.351 4830.435
Industry EBITDA 11 Valuation
Co. EBITDA 177 Value Weight
Enterprise Value 1947 DCF 4198.351 0.8 3358.681
EV/EBITDA 1947 0.2 389.400
Total 3748.081
Appendix II: Financials
• GSMA – the mobile economy Sub Saharn africa : 2014
• GSMA – the mobile economy North America : 2015
• World Economic forum the ICT report 2015
• GSMA - Country Overview: Argentina - impact of the mobile ecosystem: perspectives and opportunities
• MCT annual report 2015
• Global Telecom Trends for 2017 : A Buddecomm Report
• Nokia Enterprise Systems Report
• U.S. Telecom Industry Stock Outlook - May 2016 : Nasdaq report
• Investment in Czech Republic : 2015 – KPMG
• Uniform Standards of Professional Appraisal Practice(USPAP) guidelines
Appendix III: References