Buyout Realisation of the Year – Trade Sale

The sale by EQT Partners last year of Swedish cable TV operator Com Hem marked one of the most impressive exits ever in the Nordic region. In less than three years the Nordic buyout house transformed Com Hem to make the largest ever absolute return in the Swedish market of a reported eight to nine times its money.

Com Hem was sold to US private equity firms Carlyle Group and Providence Equity Partners. The sale price was not disclosed but thought to be a little over €1bn.

EQT acquired Com Hem in mid-2003 from the TeliaSonera group. The buyout house had had its eyes on the cable company for some time and in the late 1990s had talked to its then owner, telecommunications company Telia, about acquiring it. Com Hem was the successor to Svensk Kabel-TV, the cable company of the Swedish telecommunications company before its privatisation as Telia.

The private equity house at that time had other cable investments and knew that Com Hem was not particularly well managed, says EQT senior partner Thomas von Koch. “It would have been difficult for Telia to manage its subsidiary so that it outperformed the parent company,” says von Koch.

But when Telia and Sonera planned their merger, Telia had to divest itself of Com Hem, which means ‘come home’ in Swedish. EQT finally had the chance to acquire Com Hem and brought in industry veteran Gunnar Asp as bid adviser and, subsequently chief executive.

EQT has a history of encouraging managers to take a personal stake in their companies and Asp reportedly invested some US$700,000 of his own money into Com Hem.

At the time of the acquisition Com Hem was losing money and was “a boring cable TV company”, according to von Koch. After two-and-a-half years in EQT’s hands it had become a triple-play operation offering cable, broadband and telephone services to one third of all Swedish homes.

Among the key decisions was to spend a lot of money upgrading the equipment used by customers, says von Koch: “The cable plant had been partially upgraded to people’s houses but not the internal wiring inside the houses so we spent €130m in capital expenditure on that, which helped accelerate take-up.”

By the time of the sale to Carlyle and Providence, Com Hem’s customer base had increased from around 500,000 to nearly 1.2 million triple-play households. The company launched voice over IP services and shook up its customer service.

Von Koch says that improving marketing and customer service were crucial elements of the business plan drawn up with the company’s leadership. He brought in a top marketing director with experience from the internet and brewing industries to beef up the company’s marketing, which had been negligible under Com Hem’s previous owners.

Aggressive marketing packages in which customers could receive cable, TV and phone services and in which basic phone service was thrown in free succeeded in taking market share from rivals such as TeliaSonera. According to some market analysts this was an approach that worked because it was cheaper for TeliaSonera to lose market share than to cut its prices.

The way Com Hem responded to its customers’ needs was also tackled. “Customer service had been contracted out by the previous owners but we brought it back in-house and improved it,” he says.

Under EQT’s stewardship other ways of boosting revenue and cutting costs were put into place, such as renegotiating all existing supplier contracts. “We did all the usual stuff you need to do when transforming a company, but did it well,” says von Koch.

By the time of its sale to Carlyle and Providence there had been a 15-fold increase in Com Hem’s Ebitda, he notes.

The company’s new owners said that Com Hem had become one of the best cable assets in Europe, with 36% of the domestic TV market and 60% of the cable market. “With its exceptional service offering, the company has a strong competitive position and significant opportunities for further growth,” said Providence director Jorg Mohaupt.

Von Koch says he is pleased that Com Hem has continued to perform well under its new owners: “It’s always a pleasure when a company you sell on performs well and this has been the case with Com Hem.” He adds that there is sometimes criticism of secondary buyouts but that this is often unjustified, as the Com Hem deal shows: “Different private equity houses will have different certain time scales and expectations for a company and Com Hem was a very good investment for us and could be the same for its new owners.”