Hopes of upturn in 2Q09 telecom financial deal flow

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Bangalore: The telecom sector financial deal activity in second quarter of 2009 shows a modest increase in confidence among the major players, including carriers, vendors, their financial and legal advisors and the investment institutions looking for reasons to pull their money off the sidelines. According to a new study by Ovum, a global analyst and consulting company, public stock offerings remain nearly nonexistent even as market volatility lowers and venture capital (VC) investments in telecom continue in similar volumes but at a much lower average deal size, from $13 million per deal in 2Q08 (2Q08 average was $9.8M). The report, titled 'Financial Deals Industry Insight – Telecommunications' (2Q09 edition), however reveals that the private placement market (issuance of debt securities for fundraising) has actually picked up nicely as public markets have fallen (19 deals in 2Q09, in line with the quarterly average since 4Q07). But the total deal value increased again, nearly double of first quarter 2009 to $18 billion, up from $3.6 billion in 2Q08. One significant deal which is yet to be closed (South Africa based MTN’s pending merger with Indian carrier Bharti Airtel) sways the average upwards, but there are three other closed deals above $1 billion in 2Q09 (Qtel, Crown Castle, and Cricket/Leap). Matt Walker, Ovum Principal Analyst and author of the report, noted that there is hope from mergers and acquisitions (M&A). "We are starting to see bigger, complex deals; these often entail long negotiation cycles and carry regulatory uncertainties. In late 2008 the financial market's volatility killed interest in such transactions." For 1H09 overall, M&A deal count in telecom was 315, down significantly from the 391 deals announced or closed in 1H08. But total deal value for 2Q09 was roughly $35 billion, or twice the average seen in the previous three quarters. In addition, Walker noted that governments and deep-pocketed vendors are helping to close the gap as public markets remain tough. Governments are doing this by directly funding broadband infrastructure build outs, licensing new wireless spectrum at favourable terms, subsidizing private sector R&D and lending money in special cases. Walker concluded that, while the outlook remains cloudy, steps taken in 2Q09 by vendors, governments and private financiers to compensate for weakness in the macro-economy and public equity markets augur well for the remainder of the year in telecom sector.