Jeff Kagan: Next Wave in Mergers and Acquisitions Has Begun

Jeff Kagan |

The next merger, acquisition and consolidation wave looks like it is beginning once again in telephone, television and wireless. The industry and its different segments will all grow and change once again. This is the next step toward moving to a national scale. If you pull the camera back you will see this has happened before.

This time it may have started with last year’s deal between Sprint Softbank. At that time we were not thinking the next acquisition wave was beginning. We just thought Softbank was jumping into the US marketplace and Sprint (S) was rebuilding their networks. We just thought it was a Sprint and Softbank story.

However since then the waters have been starting to churn. Now Sprint and T-Mobile want to merge. Comcast (CMCSA) and Time Warner Cable (TWC) want to merge. And finally, AT&T (T) and DirecTV (DTV) are set to join forces as well.

To tell you the truth, I think this is just the beginning of this new wave. We appear to be entering the next wave of mergers and acquisitions.

That means I expect to see more mergers being brought to the table. And there are still plenty of other companies who want or need to grow, and acquisitions are one key way to make that happen.

The Acquisition Wave is Just Beginning

I think the more of these mergers and acquisitions that are announced, the more likely they will all or mostly all, be approved.

Single mergers are looked at on an individual basis. However with groups of mergers like we see building today, regulators must look longer-term and at the changing marketplace. They won’t let one competitor have a giant edge over others. They try and keep everyone of similar size and scope.

That’s why I think approvals are more likely the more mergers are brought to the table. However they will all take time and require companies to jump through hoops.

Mergers don’t seem to happen all the time. However when they do happen, it seems there are quite a few that happen. It’s like a wave. It grows, crests, and then falls over a few short years. Then things calm down for a few years before the next wave starts.

The last wave may have been roughly ten years ago. Prior to that there were many more, smaller companies competing in different geographic sectors.

SBC was the smallest Baby Bell headquartered in San Antonio Texas. They acquired AT&T, Bellsouth and Cingular within a couple short years. They then took the name AT&T, and reinvented themselves. They became the largest competitor in their space. Others Bells merged as well.

Time Warner Cable was the largest cable television company and Comcast was one of the little competitors. Then Comcast acquired AT&T Broadband, which was the largest in the United States. That turned Comcast into the largest cable television company in the country.

So both SBC and Comcast went from being among the smallest competitors to the largest in their segments. They did not really compete at that time however. They were both starting to roll out their high-speed Internet, but there was no fierce competition.

Companies Joining Forces to Get the Competitive Edge

Over the last decade they have started to compete fiercely. The marketplace is changing. However these wire line competitors are still regional so mergers make them more national in scope as well as bigger. And national in scope is the goal of every company.

Companies like AT&T, Verizon, CenturyLink, Comcast, Time Warner Cable and Cox operate a wire line network, which is limited by region. They are not national. Mergers will help them move closer to national.

Competition on the wireless side of the house is national. AT&T Mobility and Verizon Wireless (VZ) do compete nationally with other wireless carriers like Sprint, T-Mobile, US Cellular and C Spire Wireless.

This is the direction I see all competitors moving in. We will eventually end up with huge, national providers, and many smaller and regional providers as well. And both large and small will continue to do strong business with different focuses.

So if we pull the camera back we see that this merger wave happens from time to time. Each wave makes the competitors larger and more national.

And timing is everything. I think we are seeing the stars start to line up once again. The same kind of industry reshaping mergers and acquisitions could be getting ready to happen once again.

There are many reasons companies merge. However one of the primary reasons is to keep investors happy. Investors only care about making money. That means companies must grow. That’s why these companies are so focused on this acquisition game.

Mergers and acquisitions are one of the fastest ways to grow. With that said, there are plenty more companies like Verizon, CenturyLink (CTL) , Windstream (WIN) , US Cellular and many more who may jump into this game sooner rather than later.

This is a huge new opportunity for the investor. Keep your eyes open.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
TWC Time Warner Cable Inc n/a n/a n/a 0
S Sprint Corporation 7.98 0.04 0.50 8,775,180
CTL CenturyLink Inc. 23.92 0.18 0.76 5,972,195
WIN Windstream Holdings Inc. 7.27 0.07 0.97 1,628,811
T AT&T Inc. 38.61 -0.27 -0.69 16,102,161
CMCSA Comcast Corporation Class A Common Stock 68.78 -1.08 -1.55 13,361,365
LBYE Liberty Energy Corp 0.00 0.00 0.00 3,000

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