CABLE CONGRESS 2012 – BRUSSELS. Corporate finance experts are calling for further consolidation among Europe’s cable companies to help the sector capitalise on recent strong growth and compete more effectively in Europe.
Marisa Drew, managing director, Credit Suisse said, “Markets are screaming for consolidation. There’s a geographical prohibition that is preventing this from happening in Europe and on the market side, we would love to see one operator in markets like Germany being able to take on the incumbent and invest in the industry. We hope regulators see this logic, too.”
With both debt and equity market activity having been dormant for much of 2011, 2012 should see a renewal in deal activity. “Investors have got their heads around the ‘what if’ scenarios around the eurozone which has given them confidence to put a floor on the downside. Simultaneously, there’s now a huge amount of capital sitting in the hands of investors and it needs to be invested,” said Drew.
Experts also say that the profile of cable investors, as well as the sources of financing available to them, is likely to change. “Cable, as a sector, is becoming more and more attractive to public market investors. The IPO of KDG in Germany and other deals have brought the sector a lot of attention and this is making it difficult for private equity to compete,” said Karim Tabet, managing director, Providence Equity.
Regulation will also play a role in the structure of cable financing in the future, with the forthcoming Basel III global standard likely to see cable operators turning to bond markets and equity financing rather than traditional bank debt.
Cable’s profile as a growth stock was unlikely to change in the near term, despite the capital-intensive nature of the business. Cable companies’ CAPEX is not expected to change and have in recent years shown returns on investments in the form of networks known for their high performance. “We have good margins and good cash flow and our shareholders are comfortable with this,” said Thomas Franzen, CEO of Com Hem.
“Capex in the cable sector used to be in the region of 30% and it is this deleveraging that is driving debt finance markets. Meanwhile, equity markets are viewing cable as a growth story and as long as they are seeing a return on capital deployed they will not see it as a utility,” said Drew.
Franzen also provided insight on how cable was learning to live with the rise of ‘over the top’ (OTT) content, often cited as a threat to the industry. “In Sweden, OTT is a reality, not a threat. The way we are addressing this is to embrace it and deliver a product which makes it easy for consumers to hook into new content. We are accommodating the needs of people that want to use these services and keeping them as customers.”