M&A in the Balkans: what will satisfy United Group's appetite?

Southeast European Pay TV and Telecom provider United Group has shown significant growth over the last 3 years, driven by major acquisitions. Historically present in Serbia and a handful of neighboring markets, the media and telco group is now operating - in addition to its domestic market - across Slovenia, Croatia, Bosnia, Montenegro and since more recently in Bulgaria and Greece. An expansion driven by two new key markets for United In 2018, United announced that they were planning to invest over €600 million in the Balkans over the next five years. Bulgaria and Greece specifically appeared to be high-potential countries in United’s eyes: the media segments in these markets are rapidly growing, especially in terms of video consumption. Both markets are therefore driving the substantial investments the group is planning for the upcoming years.   This strategy is already paying off in Bulgaria where United acquired Vivacom back in summer 2020. Indeed, United Group’s Pay TV subscribers have increased significantly during the last 3 years and that enabled them to reduce the gap with its main competitors locally. In fact, between 2020 and 2022, Bulsatcom lost more than 100k subscribers while A1 grew its Pay TV users’ volume by 9%, which is significantly less than Vivacom’s 30% growth rate over the same period. This rise happened parallelly to United expanding its assets on the media landscape: the group acquired Nova Broadcasting Group in 2021. The broadcaster operates Diema and Nova channels in Bulgaria and generated close to 200 million Bulgarian lev (around 100 million EUR) annually before its acquisition, thus positioning itself as the biggest commercial TV broadcaster of the country, ahead of its regional competitor CME which owns bTV Media. United’s Finance VP, Janez Zivko, recently stated that expanding their assets in the media landscape has become a strong focus since the acquisition of TV Nova, and that the group can be expected to “invest 25-30 percent of income in new projects”. United is definitely putting the synergies between content ownership and TV distribution at the forefront of its strategy. But can its new assets in Bulgarian and Greek markets prove to be fruitful investments in the short term? These countries remain among the most impoverished in Europe, and pricing increase opportunities are only limited, even when induced by additional premium services. ARPUs are expected to remain generally low in both countries when compared to other European markets. Thus, even after all of United’s recent investments in Bulgaria, notably the rollout of higher-quality broadband services and efforts to produce more local content, it is likely to be challenging for the company to generate significant revenues and get a rapid return on investments locally.   A challenged market position...