Deal in focus: Star Capital sells Pepcom for €608m

Star Capital recently sold German cable television operator Pepcom for €608m to competitor Tele Columbus, Germany's third largest player in that market.

The purchase price equates to 10x EBITDA for the 12 months to June 2015 and values the company at 9.5x forecast EBITDA for 2015. The sale generated a money multiple of 2x.

Pepcom was founded in 2001 as an acquisition vehicle for the consolidation of small to medium-sized cable TV operators in Germany. The company is based near Munich, in Unterföhring, and provides services including analogue and digital TV channels, broadband and voice-over-internet-protocol telephony.

Today, the business counts 580,000 cable TV subscribers as well as 1,600 business customers. For 2014, Pepcom generated revenues of €126.3m and EBITDA of €57.3m. The company's leverage level stood at less than 1x EBITDA when Star Capital exited.

Star had acquired Pepcom from GMT Communications Partners and Veronis Suhler Stevenson in August 2010, in a deal valued between €280-300m.

During Star's investment period, Pepcom acquired HL Komm, a Leipzig-based telecoms company targeting business customers. Star Capital partner Uniti Bhalla explains the rationale behind the acquisition: "HL Komm has a strong fibre network around the city. Using that infrastructure, we were able to expand infrastructure so that it reaches our other customers around that area." The company also started partnership initiatives with municipalities and town communities in order to build new infrastructure and thereby expand the customer base.

Another growth strategy was the expansion to business customers: "During our ownership, Pepcom started to sell business products over its existing network, for example high-speed internet for companies. That was a new concept on the German market," says Bhalla.

Speedy exit
The GP created a new management team with experience in the sector. Uwe Nickl, former chief sales officer at bandwidth infrastructure provider euNetworks, was made CEO of Pepcom. Peer Knauer, ex-CEO of telecommunications company Versatel, became non-executive director. Bhalla named the good results generated by the management team as one reason for the exit coming earlier than initially planned.

Another factor that made an exit attractive was the returns in the cable sector. Initially, Star only targeted a refinancing earlier this year, with no intention for an exit in 2015, but was approached by potential trade buyers during the refinancing process. "There was also a strong view from the market that we should look into an IPO," says Bhalla. "Tele Columbus had listed earlier this year, so there was an interest in that stock. We had a lot of pitches from investment banks to list." In the end, Star Capital wanted a speedier transaction and opted for a trade sale.

Pepcom marks the second acquisition for Tele Columbus within two months. The recent merger with Primacom, inked in July, made it the third largest cable network operator in Germany, behind Vodafone and Unitymedia. In recent years, the big players have been buying small providers that serve separate regions, thereby defragmenting the German cable market.

Infrastructure deals seem to be delivering good returns for private equity companies at the moment, which is in turn encouraging GP activity on the buy- and sell-sides. In August, Terra Firma sold motorway service operator Tank & Rast for an estimated €3.5bn to a consortium led by Allianz Capital Partners. In July, 3i infrastructure and AMP Capital acquired the Danish emergency rescue and response vessel operator Esvagt for DKK 4.1bn.

People
Star Capital – Uniti Bhalla
Pepcom – Uwe Nickl
Tele Columbus – Ronny Verhelst

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