Global mergers & acquisitions (M&A) activity in the technology, media, and telecom (TMT) segment has been increasing since 2018, with trends reversing in 2022. Total global M&A deal value dropped 39% in 2022 to $754 billion, compared to $1.1 trillion in the previous year. Deal volume reached 612 deals in 2022, down 39% from 2021. Against this backdrop, Gulf state investment in European telecom companies showed no slow down, according to an analysis conducted by GlobalData, a leading data and analytics company.

According to GlobalData, there is a trend in sovereign wealth fund-backed entities continuing to drive outward investment in the TMT segment. Recent examples in the telco space include Saudi Arabian STC Group acquiring a 9.9% stake in Spain’s Telefónica worth €2.1 billion ($2.25 billion) in a move to become the Spanish telecom giant’s top shareholder. Other notable telco investment examples include a planned stake increase by UAE-based e& in Vodafone from 14.6% to 20% and e& paying €2.2 billion ($2.4 billion) for a controlling stake in PPF Group’s (PPF Telecom) assets in Bulgaria, Hungary, Serbia, and Slovakia.

Rajesh Muru, Principal Analyst at GlobalData, comments: “A number of factors are influencing Gulf state outward investment. However, from a telco segment perspective, investors are capitalizing on current telco market conditions, which see the European telco segment experiencing performance challenges influenced by a changing ecosystem, new emerging players, inflation, and energy costs. Telcos’ strategic goals of driving profit margins and reducing debt while also making the right infrastructure investments in areas like 5G and superfast broadband will continue to create hurdles in the short to mid-term for them. Subsequently, Gulf state fund stability, bringing with it deep pockets, will be welcomed by European telcos.”

STC Group’s strategic investment no doubt takes into consideration Telefónica’s recent performance and the position it takes in the European telco market. Telefónica Group achieved first quarter 2023 revenues of €10.05 billion, up 6.7% despite global economic challenges, including inflationary pressures. Telefónica’s revenues across its B2B digital transformation business unit rose by 43.5% in the first quarter to €429 million and achieved a debt reduction of 3.5% compared to March 2022.

GlobalData highlights that mid- to long-term trends in Gulf investment will accelerate collaboration between European and Gulf-based telcos that form part of the same investor consortiums. There’s evidence of this already; for example, apart from being a majority investor, STC Group’s relationship with Telefónica consists of a partnership agreement under the ‘Telefónica Partners Program’ for both companies and STC Group operating companies and affiliates in the Gulf state to explore opportunities in areas such as B2B & B2C, Digital Services (including cybersecurity, cloud, IoT and Big Data), Technology, Innovation and Procurement, and other strategic areas to promote growth and capture synergies.

Muru concludes: “These trends will benefit the Gulf state, which is experiencing growth in digitization and innovation in telecoms. The relationship also benefits European telcos as it gives them access to wider markets in the Gulf state and elsewhere through investment expansion. However, the relationship overall in the long term could change the market landscape, particularly in innovation and strong capabilities bought to the market by Gulf-based telcos, possibly creating a geographical conflict of interest.”