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Analysis of Bharti Airtel s Acquisition of Zain Telecom s African Operations
Managing Strategic Partnerships
Team: Suhas Khullar Sushmita Sharma Amit Ojha Sai Swaroop Thota Vikas Saroha Abhishek Chitlangia 61110575 61110155 61110036 61110378 61110041 61110301
Bharti has M&A expertise in replicating its efficient processes.5G) and Airtel¶s expertise in managing network technologies. Even though Zain has positive EBITDA. Shared services: Inter-continental roaming services. 3. The table below estimates Zain¶s enterprise value: Driver Enterprise value 2 . Extra efforts will be needed to increase this. 3. The ARPU in Africa is approximately $1. and this deal could propel Bharti to be world¶s fifth largest telecom player by subscribers. the deal makes sense. operating margins have shrunk from 45c to 35c. BPO and call center: Economies of scale 4. marketing 5. Strategic fit The Bharti-Zain deal seems to fit with the long term goals of Bharti Airtel. Financial fit From a financial perspective. the deal will helps improve both the top and bottom line owing to access to new markets and cost synergies. This would require efforts at both ends to increase revenues as well as decrease costs. 7. 2. African operations are currently not profitable. With teledensity in India expected to reach saturation levels in next few years. Network infrastructure: Better bargaining power with suppliers. Ready customers in a new geography: Cost and time required for setting up operations and acquiring a customer base in Africa would be huge for Bharti Strategically. Ease in providing intercontinental ISD services. The acquisition also provided access to African markets ± the hotbed of telecom activity. there are a few negatives about this deal: 1. 2. much lower than $3 in India. 6. both the companies can generate following synergies: 1. 2. Local knowledge: Local knowledge of market within Zain¶s people. Africa provides a perfect potential for growth owing to low telecom penetration and higher market growth rates. Bharti¶s primary motivation for the acquisition was to become a global player.Bharti-Zain Acquisition Analysis Report Acquisition rationale 1. so scouting for growth abroad is attractive. Also. With competition (13 players in 22 circles) cutting call rates in India. However. Business model: Bharti¶s business model could be adopted leading to operating efficiencies and cost savings. and so could do the same for Zain. Technology: Zain¶s expertise in data services (3/3. 4.
1B (Africa operations) Enterprise value = 8.Expertise in data services (3/3.5G) .Ability to establish presence in various African countries NA Processes Not enough information People NA Resources Capabilities . Culture Not enough information Challenges Regulatory Challenges Integrative Complexity: Bharti needs to obtain regulatory approvals for the acquisition in each of Zain¶s 15 countries. 3 .1 + «.Brand .Local Sales and product development to cater to local preferences .Inter-country roaming services across Africa . They also need to ensure continued compliance with their regulations.5 * 1.1B Customer lifetime value The estimated enterprise value is lower by $1.Customers .Bharti-Zain Acquisition Analysis Report EBITDA Multiple = 8.Need to assess whether Zain culture can offer some benefit to Bharti.05*.1 = $9. = $130 Number of subscribers = 70M Enterprise value = 70*130 = $9.5 (industry average) EBITDA = $1.3B ARPU = $12 CLTV = 12 + 12*1.95/1.7B seems to be a fair price for the deal.Multi Geographical reach in Africa .Licenses to operate in various African nations .Network infrastructure . Elements required and sources of value Assets . $10.7B. Considering that the deal has numerous synergies that it can capitalize upon.
The onus will lie on the local staff to ensure best practices and work towards the core plan of growth in each market. Zain can help Bharti with the technical knowhow of operating in 3/3. Summary: Integrative Complexity Medium Technical Incompatibility High Target Maturity Product/Environment Uncertainty Low Technical Uncertainty High Market Uncertainty 4 . may not be standardizable across the two markets. due to political instability. This model is not present in Africa right now and alliances with local players in the market might be difficult.Bharti-Zain Acquisition Analysis Report Environment Uncertainty: Telecom regulatory policies differ by country. Further. Nigerian operations). Bharti might require the services of its trained market experts in India rather than transferring them to Africa. certain value added services may be specific to each market and hence. Bharti¶s plans could go haywire if the events unfold in a way which is not favorable. there lies a big challenge in integrating the processes in 15 different countries and bringing them under one umbrella. Product Uncertainty: A key driver for the deal is Bharti¶s technical capabilities in low ARPU. but how effectively Bharti uses it is uncertain. Bharti may struggle to realize its target ARPUs. there is uncertainty around whether or not the regulations would continue to be favorable. The competitor and customer response is also unpredictable. and competitors hit them hard armed with local knowledge. customized products is a big challenge due to uncertainty in consumer preferences.5G markets. implementing it with localized.g. and to share the telecom infrastructure with other telecom service providers in the region. Market uncertainty The growth and profitability of the African market is uncertain. high volume markets. This has lead to much lower cost of operations. Operational Challenge Integrative Complexity: Bharti has been known to outsource its network to introduce cost efficiencies. social and cultural milieu. Integration Challenges Organization integrative Complexity: Africa differs from India in terms of political. However. Even though Bharti has vast human capital developed over a decade. Further. Product integrative complexity: With 3G services about to start in India. Legal Challenges Environment uncertainty: Certain ownership challenges exist (e.
but explore introducing a hybrid brand (Zain Bharti) to get global customers and emphasize that they are on the same network across the world Network Infrastructure: Get rid of Zain¶s self-owned network infrastructure and switch to the low-cost outsourced model as in India. as this is an expanding market. This makes the case for high degree of organizational integration.Bharti-Zain Acquisition Analysis Report Integration Strategy Asset retention MEDIUM Licenses: Retain all Brand: Retain. This plays on Bharti¶s strength in managing outsourced infrastructure Customers: Retain all Multi-geography presence: Retain all geographies taking Africa¶s overall growth into account Process adoption MEDIUM/LOW Zain¶s operating business models: Discard. perform process disaggregation analysis and accommodate these parameters into Bharti¶s processes Expertise in 3/3. Therefore.Bharti needs quicker returns on investment due to the deal¶s massive debt financing Why SLOWER? . economies of scale and cross learning. merging the two organizations at a functional level (i. Implementing this model quickly will help realize the benefits from its control quicker . Therefore.Zain employees need to develop trust in this new management from a different country. Also. which is important because the Africa telecom market is growing at a much faster pace while India may be cooling off. retain all people that do not explicitly clash with Bharti¶s new processes in order to be sensitive to how Zain employees¶ reaction to non-African ownership and control Retain entire sales force. to account for Africaspecific parameters. cross-functional team to promote mutual cultural understanding between people of the two countries Initially.e.5G: Retain in Africa. VP of Sales controls both Zain and Bharti sales teams) has strong potential for both. Follow processes similar to Bharti to get efficiency. we recommend a hybrid structure with business flexibility but functional control. and practically these exercises de-emphasize people5 . selectively exploit in India - People retention HIGH IMPORTANT: Create a cross-geography. and is profitable.Bharti knows the business well. as they are less efficient than Bharti¶s.Timeline indicates only 2 months of due diligence on this deal (beyond previous MTN work). This has to be balanced against the resulting loss of flexibility and adaptability. both are emerging markets that will be strongly interdependent in the future. .MEDIUM Why FASTER? . Speed of integration . However.MEDIUM Africa and India have several similarities in terms of market composition and (to a lesser extent) work cultures. and operating profitability is good Degree of Organizational Integration .
Zain¶s knowledge of 3G technology will be useful to Bharti in India. people and processes) as soon as possible to communicate the key business goals to the entire organization . we recommend the following approach: .: 3G).Zain operational efficiency is not very suspect (as evidenced by its decent EBITDA). However.HIGH The African market seems to be following a similar growth trajectory as the Indian market did. Localespecific information can be kept silo-ed but available to interested parties via a common access portal. we recommend a fast but selective knowledge transfer (e. so line employee level processes and systems can change more slowly (or not at all) Knowledge transfer .g. Similarly.Bharti-Zain Acquisition Analysis Report related integration issues Therefore. Summary: Asset Retention Process Adoption People Retention Degree of Organizational Integration Speed of Integration Knowledge Transfer Medium Medium/Low High Medium Medium High 6 . to balance this with the need for focused product delivery.Integrate high-level business and financial metrics (and related systems.Integrate mid-level operational metrics more slowly to allow people to adjust to the business goals . so knowledge transfer from Bharti to Zain is important.
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