THE proposed £10 billion acquisition of NTL is the latest in a series of moves on European telecoms and media targets by private equity players.
Over the past five years private equity has been involved in about 40 per cent of telecoms deals in Europe, including the record €13 billion (£8.8 billion) acquisition of TDC, the Danish group, and the £2.85 billion purchase of Casema, the third-largest cable TV group in the Netherlands.
The potential rewards are clear. Providence, which bought Casema in 2002 for about five times ebitda (earnings before interest, tax, depreciation and amortisation), sold it last month for more than 12 times this year’s forecast ebitda.
Peter Matthews, global telecoms partner at Ernst & Young, says the attraction of the telecoms and media sector lies in its infrastructure.
“Whatever the fears about the growth prospects and the threat of new technologies to existing telecoms players there is always value in the infrastructure — the pipes — because there will always be demand for access,” he says.
Advertisement
Private equity firms, meanwhile, are awash with cash and scouring the globe for places to invest it. The fact that they are now raising record-sized funds and are happy to join forces to mount consortium bids means there is almost no deal that will be out of reach.
Many former state-owned telecoms players which are up for grabs in the wake of their privatisations are ripe for the kind of cost-cutting that private equity groups relish.
“Some cable groups were owned by telecom incumbents who were reluctant to develop them because of the threat they posed to their main telecoms businesses,” says one industry expert.
The steady stream of cash available from cable firms can also be used to repay debts.