Questions? +1 (202) 335-3939 Login
Trusted News Since 1995
A service for banking industry professionals · Thursday, March 28, 2024 · 699,447,365 Articles · 3+ Million Readers

Valuations of Privately Owned US Communications Companies Hold Steady Despite Slowdown in M&A Activity

U.S. communications assets remain attractive, consolidation within private market will continue

/EIN News/ -- DENVER, June 05, 2023 (GLOBE NEWSWIRE) -- The feverish pace of merger and acquisition activity in the U.S. communications market has slowed over the last year. Rising interest rates, supply chain delays and concerns about a weakening economic environment have all played a role in the slowdown. However, the slower pace of deal making has had little effect on valuations of private communications companies, according to a new report from CoBank’s Knowledge Exchange.

“Private market valuations have remained quite strong and are performing better than their publicly traded counterparts for a number of reasons,” said Jeff Johnston, lead communications economist for CoBank. “Many smaller private communications companies have attractive growth prospects, a dominant market share position and high brand equity within the communities they serve.”

Over the last several years, the communications industry has seen a tremendous number of mergers and acquisitions. Large international infrastructure funds raised billions of dollars to invest in the digitization trend sweeping across the U.S. Private equity sponsors also looked to gain exposure to the industry’s tailwinds and attractive investment returns.

The massive influx of private money chasing a finite number of opportunities drove valuations for data centers and broadband operators to record levels. Earnings before interest, taxes, depreciation and amortization (EBITDA) multiples for public M&A transactions were driven up 80% compared to 2009 levels. Private market valuations also soared and bidding activity on companies remained very active.

The softening pace of mergers and acquisitions over the last year is due to a combination of factors. Borrowing costs have grown significantly as the Federal Reserve aggressively increased the federal funds rate. And with higher borrowing costs, the business case for acquiring an operator looks different than it did 12 months ago. Investors and strategic buyers can also become more cautious in deploying capital during times of economic uncertainty.

The labor market remains incredibly tight, and the broadband sector is not immune to this challenge. According to the Fiber Broadband Association, the industry will need an additional 205,000 workers through 2026. Workforce shortages are forcing companies to pay more for labor with sign-on bonuses and increased wages. Equipment is also becoming more expensive.

Supply chain issues are preventing institutionally owned operators from hitting their fiber network build plans. And their cost structure is higher than what they originally modeled. These issues have likely pushed out planned sale dates, which influences how quickly some institutional owners can turn over their portfolio with new acquisitions.

Despite the current challenges, investors are still extremely interested in the communications industry given the multiple tailwinds it enjoys. The surge in artificial intelligence applications like ChatGPT and its rapid growth will have a profound impact on the communications and data center markets. These applications require significantly more computing and storage capabilities and will increase the demand for fiber connectivity.

“We expect transaction volume in the communications M&A market to pick up once the economy is more certain and companies are able to execute their plans with greater precision,” said Johnston. “The reality is that market consolidation still has a long way to go, especially in underserved and unserved markets.”

Watch a video synopsis and read the report, Slowdown in M&A Activity Does Little to Dent Private Valuations for U.S. Communications Companies.

About CoBank

CoBank is a cooperative bank serving vital industries across rural America. The bank provides loans, leases, export financing and other financial services to agribusinesses and rural power, water and communications providers in all 50 states. The bank also provides wholesale loans and other financial services to affiliated Farm Credit associations serving more than 76,000 farmers, ranchers and other rural borrowers in 23 states around the country.

CoBank is a member of the Farm Credit System, a nationwide network of banks and retail lending associations chartered to support the borrowing needs of U.S. agriculture, rural infrastructure and rural communities. Headquartered outside Denver, Colorado, CoBank serves customers from regional banking centers across the U.S. and also maintains an international representative office in Singapore.


Corporate Communications
                    CoBank
                    800-542-8072
                    news@cobank.com
                    
Powered by EIN News
Distribution channels: Media, Advertising & PR


EIN Presswire does not exercise editorial control over third-party content provided, uploaded, published, or distributed by users of EIN Presswire. We are a distributor, not a publisher, of 3rd party content. Such content may contain the views, opinions, statements, offers, and other material of the respective users, suppliers, participants, or authors.

Submit your press release