GMT Communicates With Euro Investors

Third-generation wireless technologies – and the massive capital outlays they demand – have drained financial and human resources from the European debt and loan markets. However, there is still room in the arena for those companies on the Continent’s burgeoning private equity scene.

The most notable example this week is GMT Communications Partners, which recently closed a Euro 365 million vehicle dedicated to trans-European media and technology plays. The news follows up on last week’s revelation that London’s Argus Capital Group had decided to extend its $172 million reach to Central and Eastern Europe (See PEW, Nov. 13, pg. 9).

“[In terms of 3G wireless], Europe seems to be getting its act together faster than the U.S., but the capital expenditures have sucked tens of billions of capacity out of the market,” said Terrence Tehranian, co-founder and manager of GST Communications Partners. “It’s sucked lots of money and will suck money, leaving us a big opportunity with other companies. Value-added services are really only at the beginning.”

Not only will the fund invest in complementary wireless technologies – including an investment in a voice recognition technology optimized for PDAs and mobile phones expected to be announced within the next few weeks – but it also will focus its attention on competitive local exchange carriers (CLECs), traditional media and Internet infrastructure deals.

All of this is, of course, a bit precarious given how the financial markets seem to have temporarily turned against all things high-tech.

“When sentiment turns against a sector, sentiment also turns against the equity and debt markets, and often the private equity markets as well. Luckily we began fund-raising long before that,” Tehranian said.

To date, the fund has closed four investments. It completed a Euro 8 million deal with Coherent Networks International, an enterprise software provider to the telecom sector.

GMT also guaranteed Euro 17 million to Formus Communications, a fixed wireless broadband operator with licenses in eight European countries. Nexus Equity Ltd., a U.K.-based Internet infrastructure provider, secured Euro 15 million from GMT while Skyline, a bidder for fixed wireless broadband licenses in France, received Euro 1.3 million from the firm.

Running the Show

Jeff Montgomery and Tim Green manage the new venture vehicle alongside Tehranian. The trio first came together in 1992 as founders and managers of Baring Communications Equity Ltd.

While the 18-person strong investment team is based in London, the management trio’s track record indicates that nearly 80% of the new firm’s investments will fall outside the U.K., extending from France and Spain to Poland, Romania and Slovenia. With an investment window of five years, the new fund is expected to invest an average of Euro 10 million to Euro 25 million in each deal.

Although the vehicle’s sector-focus is well-defined, its stage-focus is not. GMT is willing to take on buyout deals with cash flow positive companies, pump development capital into earlier-stage companies and even fund start-ups with defensible market share.

The fund, originally targeted at Euro 250 million, held a first close in December, followed by a second close this past summer. Limited partners include a number of financial institutions and a slew of entrepreneurs and individuals active in the media and telecom sectors. While 40% of the limited partners are European players, a full half are based in the U.S.

“Over the last 18 months, U.S fund managers have caught on to European telecom and media – it’s exciting and unexploited,” Tehranian said. “There’s lots more money being raised in Europe than in the U.S.”