Why Private Equity funds should push for Telecom Enablers.

Over the past two years Private Equity (PE) has become a major part of M&A activity in the telecoms sector and several exits have shown the high values PE can extract. We believe PE is right to reactivate its interest in telecoms, as the sector is both attractive and PE goals and methods fits the current state of the sector: 

• Telecoms is attractive, as it is the biggest part of the economy, and has growth faster than GDP.
  

• Most telecom operating companies (telcos) still have low productivity relative to other service and Utility sectors so PE methods should be able squeeze more value out of them.
  

However the window of opportunity for standard PE methods is closing fast. The industry is striving for productivity improvement and so squeezing out more value by itself; the industry believes its traditional markets are saturated, so is going for growth in new services which are higher-risk and so more VC than PE investments; the increased interest in telco M&A is pushing up acquisition prices. 

The key question for PE is therefore: Are there value-extracting opportunities beyond traditional methods or should PE quickly sweep up the few remaining attractive telco M&A candidates, then move on? 

We believe: Private Equity investors should extend their traditional PE methods to open up many more Telco M&A candidates, and take the Telcos from the hunting to farming level by complementing the Net-co and Serve-co arms of a Telco with an Enabler arm, adding 50% to the Net Present Value (NPV) of investments in five years!