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PE Firms Buy Euro Carrier

A consortium of private equity firms is buying GTS Central Europe , a wholesale and business services carrier with operating companies in five key Central and East European markets. (See PE Firms Buy GTS CE.)

The consortium, led by Columbia Capital , M/C Venture Partners , and Innova Capital Sp. z.o.o. , and also including Bessemer Venture Partners , did not provide details of the acquisition price.

It noted, though, that GTS Central Europe (CE), which has about 1,500 staff, expects to report earnings before interest, tax, depreciation, and amortization (EBITDA) for 2007 of about €69 million ($102 million) from revenues of €393 million ($579 million).

That's not a great deal more than the carrier reported for 2006, when it generated EBITDA of €58.7 million ($86.5 million) from revenues of €382 million ($563 million).

The prospects for growth are strong though, as GTS CE has infrastructure and operations in five of the region's key growth markets: GTS Energis in Poland; GTS Novera in the Czech Republic; GTS-Datanet in Hungary; GTS Nextra in Slovakia; and GTS Telecom in Romania. (See Eastern Promise, GTS Datanet Uses Cirpack, NEC Wins Hungarian Deal, and GTS Novera Deploys Ceragon.)

It offers fixed voice, data, MPLS, and broadband access services mostly to business customers, including Citibank , Ericsson AB (Nasdaq: ERIC), General Motors, HP Inc. (NYSE: HPQ), and Unilever , as well as to other carriers and content owners.

In a prepared statement, Innova Capital partner Krzysztof Krawczyk noted that GTS CE is a "highly attractive opportunity given its dense metro and long haul fiber footprint which is unique in the Central and Eastern European region and offers attractive growth prospects. This acquisition is a significant investment for all the leading members of the Consortium and we are looking forward to further developing this asset." (See ZTE Deploys Backbone.)

The private equity firms aren't the only companies that have identified the region's services growth prospects, as the GTS CE deal is just the latest in a string of service provider acquisitions in the Central and Eastern European (C&EE) region. (See Hungary for M&A Action, Vimpelcom to Buy Golden, Telekom Austria Gets MDC Stake, Slovenia Attracts M&A Action, and Mid Europa Buys SBB.)

Krawczyk wasn't immediately available for further comment on what plans the consortium has for GTS CE. But Matthew Finnie, CTO of pan-European operator Interoute Communications Ltd. , which also has extensive assets in the region, says the consortium has bought into Europe's hottest growth area. (See Infinera Muscles Into Interoute, Interoute Offers Rapid Capacity, and Interoute Meshes Europe.)

"There are a lot of big bandwidth and transit deals coming from [Central and Eastern Europe]," says Finnie. "That's because you have broadband rollout all over Eastern Europe."

Adding to the party are markets such as Turkey and the Middle East. They're growing fast and want to connect with Western Europe and the transatlantic routes, and therefore need connectivity and capacity through the C&EE region, Finnie says. (See Who Does What: Middle East Carriers, Poland's Dialog Tunes in to IPTV, Turk Telekom Uses T-Series, and Turkcell Reports 2006.)

"There should be plenty of opportunity to expand at the moment. We are seeing huge amounts of growth there just in terms of capacity" as growing service providers hook up to the major Internet exchange in Frankfurt, Finnie says. "Frankfurt is the fastest growing exchange in Europe at the moment."

The Interoute man believes the consortium will have identified ways to slim down the GTS CE group.

"It looks like quite a federated organization," he notes, with each of the five country-specific operating units likely to have many similar systems. "The NGN mantra these days is that you don't need regional duplication – there's likely huge potential for centralization."

Finnie wouldn't comment on whether Interoute, which has grown through acquisitions as well as network rollout during the past few years, had checked out GTS CE as a potential takeover target. (See Interoute Buys Network, Interoute Expands in Eastern Europe, Interoute Buys TPN, and Interoute Buys Euro Network.)

— Ray Le Maistre, International News Editor, Light Reading

digits 12/5/2012 | 3:50:19 PM
re: PE Firms Buy Euro Carrier So, what will the new private equity owners do -- develop the asset (cut costs, centralize to boost margins), or asset strip?
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