2020 China telecom M&A review and outlook: Entering the 5G era: rise in data traffic and construction of infrastructure

April 2021

From 2016 to 2020, the China telecom market had a total of 723 disclosed domestic and overseas M&A transactions, with a total transaction value exceeding RMB 450 billion. Among them, 148 transactions were conducted in 2020, and the total transaction value jumped from RMB 36.7 billion in 2019 to RMB 175 billion, the highest in the past five years. 2020 was the first year of large-scale 5G construction, during which telecom equipment suppliers sector benefited largely from the 5G construction and M&A transactions were the most active with frequent mega deals. IDC, cloud computing, and the IoT sectors were continuing to heat up under the influence of "data traffic + infrastructure". In addition, the opening of the SSE STAR Market as well as the implementation of the registration-based IPO system in the SZSE ChiNext have allowed growing companies with core technology advantages easy access to the capital market, which also greatly encouraged market participants' enthusiasm for M&A.

Looking ahead, 2021 will continue to be a peak year for 5G development, and 5G applications commercialisation will further take root. Currently, 5G construction is still in its initial period, and the construction and upgrade of related support functions for communication stations and midstream networks, 5G terminals iteration, and application landing the market require a large amount of capital investment. Therefore, we believe that M&A in the China telecom market will continue to rise: First, master telecom devices and optical modules will continue to attract capital. Second, IDC, internet of vehicles, industrial Internet may grow into the fastest-growing segments in the M&A market. Third, capital will accelerate the IPO process of companies with high growth potential.

"Data traffic", "new infrastructure" and "China-US friction" were the three key words in China's telecom M&A in 2020. Entering the first year of the "14th Five-Year Plan", 5G construction will continue to be in full swing in 2021. While there still will be disturbances from overseas trade and political events, "new infrastructure" and "domestic circulation" will serve as a solid foundation for the development of the China telecom industry. The industry will continue to accelerate the pace to become "independent and controllable" and accumulate kinetic energy for the future. We believe that, with the help of 5G development, relevant companies and market investors in the industry chain will accelerate the deployment and integration, exploring investment opportunities in the industry. Considerable return can be expected in the future.

- Carol Wu, PwC Mainland China and Hong Kong Telecommunications Deals Leader, PwC Mainland China and Hong Kong Deals Partner

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Carol Wu

Partner, PwC China

Tel: +[86] (10) 6533 2956

Benjamin Xie

Partner, PwC China

Tel: +[86] (10) 6533 7887

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