Thanks to their $2 billion buyout of Greek cellular phone company TIM Hellas in November 2005, Apax Partners and Texas Pacific Group (TPG) found themselves in the record book: The deal was Greece’s first significant buyout. It was also Europe’s first buyout in the wireless sector and its first deal with all-bond financing.
Awarded Buyouts’ European Deal of the Year, the transaction was “highly complex and challenging,” says Philippe Costeletos, who spearheaded the deal for TPG.
Apax and TPG had to delist the company on two exchanges, brave an untested Greek regulatory environment, buck conventional market wisdom and see beyond underperforming financials.
As early as 2003, TPG and Apax separately expressed an interest in buying TIM Hellas from majority owner Telecom Italia SpA. A year later, after deciding the wireless unit was no longer strategic to its core Italian business, Telecom Italia asked TPG and Apax to join forces. “They wanted to put together two good private equity houses” that had expertise in telecom and could handle the complexity, says Giancarlo Aliberti, who led the deal for Apax.
Based on the strength of partnership and the right price, Apax and TPG were awarded six weeks of exclusivity rights at the beginning of 2005.
“We made them an offer, and they came back to us and said if you can match our price, it’s yours,” says Aliberti.
In April, drawing down a bridge loan from Deutsche Bank and JP Morgan, Apax and TPG acquired Telecom Italia’s 81 percent stake in TIM Hellas for ?1.114 billion or $1.4 billion, which was $21.29 per share, a 17.6% premium of TIM Hellas’ six month average ADR price.
Next, Apax and TPG moved to buyout the minority owners and delist the company. TIM Hellas was listed on Nasdaq and the Amsterdam stock exchange but was subject to Greek law. “As the first cash-out merger done in Greece, we had to put together a structure that would allow that under Greek law,” says Costeletos.
“We didn’t have any certainties,” adds Aliberti. “The lawyers kept saying, This is how it should work, but it has never been done.'”
Besides the regulatory hurdles, there was the risk that one or more of the minority investors would try and block Apax and TPG’s offer of $21.29 per share, the price offered to Telecom Italia. On Oct. 27, a minority investor petitioned a Greek court to block the deal. On Nov. 3, however, the court ruled in Apax and TPG’s favor and the firms received approval to buy the minority interests.
The financing behind the buyout was not a simple process either. “We ended up with a novelty structure,” says Aliberti. “All bonds, senior secured and high-yield bonds, and a small part was a PIK.”
Says Costeletos, “We structured the financing with no covenantsto allow time for the business to turn around.”
When Apax and TPG began serious talks with Telecom Italia, TIM Hellas had posted a net loss of ?28.5 million for the twelve months ending Dec. 31, 2005. “We were seeing declining trends in all key operating performance measures,” says Aliberti. With 2.3 million subscribers, TIM Hellas had 21% market share and was the third largest mobile phone company in Greece.
“We had to have the conviction that with the right CEO and management team the business could be turned around,” says Costeletos.
Apax and TPG also had to take a hard look at the wireless sector. Market researchers saw the Greek wireless market as over penetrated with growth, stagnant or declining. Bucking conventional wisdom, the firms looked at “active penetration” (number of subscribers actually using the service) as opposed to the more commonly reported “total penetration” and determined it was a better market environment than analysts thought, says Costeletos.
In the months since acquiring TIM Hellas, Apax and TPG have “given a lot of investment fuel to marketing, customer retention and advertising,” says Aliberti. “The customer base is growing and market research shows brand preference is improving.”
Throughout all the ups and downs, Apax and TPG were also breaking new ground in their own working relationships. Neither firm had worked together on a deal, and there was always a chance that conflicts would derail the project. But “it went extremely smooth. Sometimes you get into ego fights, but in this case it didn’t happen,” says Aliberti. In all, five Apax professionals and four from TPG spent months working out the details, often meeting together in Rome, London, and Milan.
To further strengthen the TIM Hellas deal, Atlas and TPG simultaneously structured a buyout of Greece’s fourth largest wireless carrier, Q-Telecom. Talks started in June, an agreement was signed in October, and the acquisition, ?350 million financed with?200 million in high-yield and equity, closed in January 2006.
Q-Telecom, which is now a wholly owned subsidiary of TIM Hellas, has brought an added value to the TIM Hellas deal by consolidating the market, says Michael Zekkos of JP Morgan, one of financial advisors on the two buyouts. In addition, the old Q-Telecom was an aggressive, cannibalizing force, and now, says Zekkos, the market is more structured and rational, creating the right climate for potential buyers.
“It’s a bit early to say, but I have no doubt that there will be real interest on the assets,” he says.
Zekkos, Aliberti and Costeletos believe that the success of TIM Hellas will open
up the Greek market to similar deals. “We have been approached by a number
of private equity partners who have
asked us to review the Greek market,” says Zekkos. “Before, Greece wasn’t even on the radar.”