Deal in focus: Mangrove in partial exit from Nimbuzz

UK telecomms service provider New Call Telecom acquired a 70% stake in Nimbuzz for $175m earlier this month, giving the company an enterprise value in the region of $250m.

New Call's chairman, Jerome Booth, who took part in the establishment of Ashmore Group in 1999 and subsequently retired last year, owns a significant stake in the business and is the brains behind the company's push into India. Booth approached Mangrove Capital Partners at the start of this year with the offer to join his "Indian adventure" to build a next-generation telco firm in the country, according to partner Michael Jackson.

"At the same time, we have an obligation to return capital to our investors, so we decided to take the middle ground," Jackson says. "People say that if you bet on two horses you won't win on either, but in this case we think we can – we generated a good return for our investors on the cash side and at the same time can continue our participation in the business."

Adapt to survive
Nimbuzz was founded in 2006 in Rotterdam, from where it still professionally runs its telco operations. The company began as a social network aggregator for older styles of mobile phones, prior to the launch of the first iPhone, but this type of service became all but obsolete when Facebook took off. "When Facebook took over and decimated the social networking world, Nimbuzz changed direction and became an instant messaging service," says Jackson.

The company provides a free instant messaging and voice-over-internet-protocol service for mobile users. Mangrove first invested in the company in May 2007, providing $10m in funding alongside Holtzbrinck Ventures – which has since exited – and internet services operator Naspers. The deal originated when Nimbuzz founder Evert Jaap Lugt approached Mangrove's Mark Tluszcz, according to unquote" data.

At the time, the company employed 20 staff and provided social messaging services between mobile devices and PCs. Now, the company has changed course and its main focus has shifted to India's emerging smartphone and instant messaging markets.

Now employing 100 staff and operating an additional Indian office located in Gurgaon, Nimbuzz generates around $15m in turnover and is expected to double this figure in 2014. Of its 200 million registered users, 20% are from India.

"When we looked at the subscriber base, we found that it was mostly around the emerging markets," says Jackson. According to regulator Telecom Regulatory Authority of India (TRAI), India's mobile subscriber base hit more than 933 million by the end of the first quarter this year. This number is expected to grow to more than 1.1bn by 2020.

Opportunities emerge
When Nimbuzz switched its efforts to becoming an instant messaging service, it refocused to the Middle Eastern, north African and Indian markets and launched products that were suitable for those countries, which are "very different to the products that are suitable for the western markets", according to Jackson.

"In the west, you have a world that is, from a financial point of view, dominated by the iPhone and 3G and 4G services," says Jackson. "India is different. The cellular coverage is quite sparse and the population density is very high so the cell services are congested."

The country's smartphones market grew by 300% in 2013. It experienced an impressive year-on-year growth rate of 186% in the first quarter of 2014 and a further year-on-year growth rate of 84% in Q2, according to International Data Corporation.

However, "nobody's seen an iPhone in India – they're so expensive", Jackson says. "But there are now sub-$100 Android phones, which is a price point that people can afford in the country."

The result is an Android-dominated market that relies on advertising, rather than a credit card payment system, and wifi, rather than 3G and 4G. Says Jackson: "New Call's goal is to build a telco that satisfies the specific needs of Indian consumers, and with Nimbuzz, they're getting a brand that is already extraordinarily well known in the country."

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