CORPORATE FINANCING FOCUS: Group of Private Equity Funds Bids $12 Billion for Telecom in Europe's Biggest LBO Ever
Platt, Gordon, Global Finance
Private equity funds, banding together in bidding consortia, have become major acquirers of European companies, particularly in the telecommunications sector, which is quickly evolving and consolidating.
Five of the biggest private equity firms worldwide agreed on November 30 to pay $12 billion in cash for Denmark's leading telecom, TDC. Including debt, the deal was valued at $15.6 billion, making it the largest leveraged buyout ever in Europe.
The private equity deal was the biggest globally since Kohlberg Kravis Roberts' $31 billion buyout of RJR Nabisco in 1989. KKR was also a member of the bidding group for TDC, along with Apax Partners, the Blackstone Group, Providence Equity Partners and Permira Advisers.
The consortium formed a special-purpose finance company named Nordic Telephone to bid for Copenhagen-based TDC. The deal was conditioned upon at least 90% of the Danish telecom s shares being tendered. Nordic Telephone beat out another investor group led by Cinven, BC Partners, Apollo Management and Silverlake Partners. JPMorgan, Enskilda securities, Deutsche Bank, Barclays Capital, Credit Suisse First Boston and Royal Bank of Scotland arranged the financing for Nordic Telephone's acquisition.
The billions of dollars of low-cost credit provided by investment banks are enabling private equity funds to leverage the companies they are acquiring, analysts say. The funds have huge mountains of cash available for investing, even without taking the leveraging into account.
Meanwhile, merger activity in Europe reached about $900 billion in 2005, according to Thomson Financial, the highest level since the peak of $1.2 trillion in 2000.
Improved visibility on broadband rollouts and increased access to capital markets has resulted in a strong M&A market for the larger telecom companies, where valuations have increased significantly, according to a report by London-based GMT Communications (Partners, Europe's largest independent private equity group focused exclusively on the media and telecom sectors.
Many telecoms that took on excessive debt to buy 3G licenses have gotten their finances under control, and there will be no more fire sales, says Jeffrey D. Montgomery, managing director at GMT. The increased deal volume is also taking place against a background of stronger growth in advertising spending in Europe, which is outperforming the United States in this sector, he says.
Europe also exceeds the US in broadband penetration, according to GMT, both in absolute and percentage terms. As a result, many European media and telecom companies are already well advanced at adjusting their strategy to reflect changes in technology.
NTL, Britain's largest cable operator, made a $1.4 billion offer in December for Virgin Mobile, a deal that would create the first company in the United Kingdom able to bundle voice, video, data and wireless services in what is known as a quadruple-play operator.
European LBO volume has recorded a steady increase since 2001 and rose by 31% to more than $154 billion in the first eleven months of 2005, according to Dealogic. Four of the biggest European LBO deals of the past four years occurred in 2005.
Telecommunications was the leading LBO sector in Europe from January through November 2005, with about $40 billion worth of deals. Deutsche Bank was the top adviser for European LBOs in 2005, with a 36% market share on volume of $56 billion, Dealogic says.
Nordic Telecom, or NTC, said in a statement released by KKR that it expects to continue the strategy publicly announced by TDC of capitalizing on the growth in mobile and broadband markets. "NTC" expects to continue to support management's successful Nordic consolidation strategy through potential additional acquisitions, such as the highly successful integration of Song," it said.
TDC- acquired Song in November 2004 with the intention of becoming the leading supplier of Internet-based communications services to Nordic businesses. …