STAR Capital Partners is to sell Pepcom, Germany’s fourth largest cable operator, to one of Germany’s largest cable market operators, Tele Columbus, for a consideration of EUR608 million.
This represents an EBITDA multiple of 10.0x based on LTM through to June 2015 and 9.5x 2015F EBITDA. The deal has been agreed by the board of Tele Columbus, subject to shareholders approving the required equity raising.
STAR acquired Pepcom in 2010 from GMT Communication Partners and Veronis Suhler Stevenson in a bilateral transaction with a view to driving growth based on:
• expanding its geographic footprint both organically and by acquisition in the highly fragmented German market;
• improving ARPU through the sale of triple play products (telephony, high speed internet and TV) across its continuously upgraded networks; and
• the opportunities for larger scale M&A and consolidation in the German cable market.
During the past three years of ownership the STAR investment team has accelerated the strategic development of the company through a series of measures that included:
• the acquisition of HL Komm, the Leipzig based city carrier which expanded its network footprint into new regions of Germany, diversifying away from Pepcom’s core customer base in Munich and taking the group into the business communications market to enhance growth potential;
• integration of Residential and Business services across the group, generating greater value from common infrastructure;
• innovative partnership initiatives, including working with municipalities and town communities, assisting them to capitalise on the German Governments initiative to build new infrastructure and enable rural communities to access high speed internet services;
• the geographical expansion and future-proofing of its network through disciplined, “success-based” capital investment amounting to over EUR100 million in the last three years alone ; and
• the recruitment of a senior and highly entrepreneurial management team led by CEO Uwe Nickl, who in partnership with STAR and experienced non-executive director investor and senior advisor to STAR, Peer Knauer, delivered significant growth and value.
As a consequence, the company provides high-speed internet and telephony services to over 580,000 unique subscribers with a network that passes 1.6 million homes with very low levels of churn, and 1,600 business customers. Its highly successfully strategic development has seen the company achieve revenue CAGR of 15% and EBITDA CAGR of 10%, since 2010. Revenues for the year ended 31 December 2014 amounted to EUR126.3 million, generating EBITDA of EUR57.3 million.
The sale represents another successful realisation for funds managed by STAR Capital, which focuses on investing in and developing capital intensive and asset-based investment opportunities. The STAR II Fund has already generated significant returns to investors through the sale of investments such as Eversholt Rail Group for an equity value of approximately £1.1 billion in 2015 and other investments such as Blohm + Voss Oil and Tools, Blohm + Voss Industries and German nursing home operator, Alloheim. Following the completion of this deal, STAR believes that the STAR II Fund will be in the upper quartile of fund performance for its 2006 vintage, based on a number of metrics.
Uniti Bhalla (pictured), Partner of STAR, says: “Pepcom was a classic investment for STAR. A majority of the business is based on very long term contracts, often up to 15 years, which produce long term, predictable revenue streams – more often associated with infrastructure investments – combined with the significant profitability and cashflows and superior value generation opportunities associated with traditional private equity investments. We worked closely with the management team to drive top and bottom line growth through significant investment in the network and careful, value-accretive acquisitions.
The underlying strengths of Pepcom, supported by its high quality, scalable and well-invested network and diverse portfolio of contracts, elicited significant interest from trade, experienced cable financial investors and also a number of infrastructure focused funds.. Given Tele Columbus’ position as one of Germany‘s largest cable network operators and the clear synergies that exist we believe that under its ownership, Pepcom is positioned to continue its already impressive growth trajectory. This transaction adds to our track record of generating significant returns for our investors."
Tony Mallin, Chairman of STAR, says: “Since STAR was founded in 1999, approximately 50% of our investments by number have been in German businesses. Germany is well known for its long term investment planning and attention to detail and quality. This is evidenced by many of the deals we have done in the country. Germany will continue to be an important region for our investment focus and we will continue to leverage on our wide and extensive network across the country.”
