Telecommunications private equity and venture capital quarterly update

Fund frenzy

Communications investments in Europe continue to grow. According to NeSBIC venture capital partners, in 1999, euro1.3 billion were invested in 402 companies in the communications industry in Europe. Average deal size was around euro2.5 million and investment growth was up 122 per cent between 1997 and 1999. Focus areas for investment in Europe include wireless data; broadband (wireless & fixed) access provisioning; NextGen IP services; and infrastructure technologies.

Mega funds

Despite a reported overload of funds in the telecoms and Internet field, there are more opportunities now, compared to a year ago, when prices were very high. The telecoms arena in Europe is changing rapidly. Digital convergence, broadband access and intense competitive pressure are all paving the way for a new regulatory framework. Within the last 12 to 18 months, investors seem to have realised the huge potential of this deregulation and investors envisage even better returns now, due to the recent high profile correction of the public capital markets in the telecoms and media sectors.

Over the year, sizeable pools of capital have been raised, targeting the European telecommunications market. Among these are Goldman Sachs $5.25 billion private equity fund, which is almost twice the size of its $2.8 investment vehicle it raised two years ago. The fund is focusing on traditional leveraged buyout deals as well as early stage investments, concentrating on emerging telecommunications and technology deals. GMT Communications Partners, a leading private equity specialist in the telecoms and media sector, has completed fund raising for GMT Communications Partners II, investing exclusively in communications opportunities in Europe. The fund has exceeded its original target of euro250 million, closing at euro365 million.

Also this year, leading investment bank, Lehman Brothers raised a $800 million global communications fund. Communications Fund L.P. will primarily commit to early stage communications service providers, covering telecom, datacom and Internet investments. And Warburg Pincus announced the final closing of Warburg Pincus International Partners, LP (WPIP). The $2.5 billion private equity fund is one of the largest of its kind and will target both early-stage and later stage investments outside the US, focusing on the company’s core areas of expertise such as communications, media, the Internet, information technology and consumer products and services, among others.

New York-based Baker Capital announced the closing of its second communications-dedicated investment vehicle, surpassing its original target of $750 million, announcing its closing at $1.1 billion. Its focus, consistent with the first fund, is in equipment, services and applications in the communications industry. John C. Baker, founder of Baker Capital has high hopes for the fund, saying: “The communications market is the most dynamic sector of the global economy and we see many years of continued growth”.

Mobile Internet opportunities

There has been explosive growth of users accessing the Internet via mobile devices and there is growing market opportunity in the emergence of mobile data. In March this year, seven venture capital firms specialising in the telecommunications and Internet sectors, joined forces to form the Wireless Internet Venture Association (WiVa) to promote start-ups in the mobile Internet sector. The founding members of the company include Mobile Internet Capital (Japan); the venture capital unit of Sonera; Innovacom, France Telecom’s venture capital subsidiary; Fintech, a joint venture between the investment bank Mediocredito Centrale and the Telecom Italia group; Ericsson Innova, a Spanish venture capital subsidiary of Ericsson; 3i-Technologieholding; and ArtsAlliance, a London and New York-based venture capital firm specialising in building Internet content, commerce and community businesses.

Corporate venturers active in this sector include Swedish giant Ericsson that in September announced a $75 million investment in what will become a separate fund management team targeting investments in the mobile Internet development space. Ericsson Venture Partners will be set at $300 million with Ericsson’s commitment matched by AB Industrivarden, one of Sweden’s largest active ownership stock holding companies, Investor AB, and the US investment bank Merrill Lynch. Nokia Venture Partners has just launched a $500 million global fund specifically targeting start-ups in this sector, with an increased focus on Israel and the Asia Pacific region. Mobile communications company Vodafone Group has also announced the creation of a global venture fund to invest in wireless and Internet opportunities. Vodafone Ventures will be the principal channel for Vodafone’s private equity investments and the initial fund will be capitalised at £100 million.

German media concern, Bertelsmann is a new venture capital fund with a target volume of up to DM2.2 billion. Focusing on the media and Internet sector, eBertelsmann will support Bertelsmann in developing or acquiring new businesses and in developing new business fields and new technologies relevant to the creation and distribution of media content.

Room for potential

The Italian market also saw significant developments in the telecoms sector this year. In March Internet Capital Group (ICG) announced a joint venture with Enel, Italy’s leading electricity group. As well as focusing on the telecoms market (Enel has a 51 per cent holding in WIND, a commercial telephony joint venture with Deutsche Telekom and France Telekom), the joint venture will also concentrate on opportunities in the water, electricity and gas segments of the European utilities market. Under the terms of the agreement, Enel took a $25 million stake in ICG and the Italian joint venture will be capitalised at $10 million and split equally between the two strategic partners.

In June, Clayton, Dubilier & Rice, Cisco Systems, Advent International and Brera Capital paid euro800 million for an 80% stake in the Italian switch manufacturer Italtel SpA from Telecom Italia SpA. Clayton, Dubilier & Rice put in some euro285 million for a 50.1 per cent stake with Advent and Brera taking 11% each and Cisco and Telecom Italis each with 19%.

In the Scandinavian wireless market, Argo Global Capital and Northstream have launched a $50 million venture, Argnor Wireless Ventures, with a view to “bridging a gap in the seemingly crowded Scandinavian market”. The fund will provide development capital and strategic support to promising new Scandinavian companies with innovative services or products for wireless data communication and third generation mobile networks. Argo has extensive investment experience in the sector with more than $375 million under management and over 30 wireless commitments in Europe, North America and Asia, while Swedish-based Northstream is highly reputed for its industry expertise in the field of wireless data communication.

Movers

BancBoston Capital, the private equity arm of FleetBoston Financial has recently appointed Roberto Liguori and Paul Newsome to its European technology and communications group. Both have assumed responsibility for developing investment opportunities with European technology and communications companies.

Blackstone Group, the New York-based private investment bank, has opened a London office in St James’ that houses a communications private equity investing unit. Simon Longergan, a principal who joined the firm in 1996 is managing the department. Providence Equity Partners, the US-based private equity telecommunications specialist has also announced further commitment to the European market. The firm opened its London office in July last year and in August appointed three new senior staff – John Hahn as managing director, Anne Farlow as director and Biswajit Subramanian as vice president.

Telecommunications and media buyouts in 2000 so far

January

· A management-led investor group, backed by Kohlberg Kravis Roberts & Co and Salomon Smith Barney of the US, acquired the telecommunications business of Robert Bosch GmbH for an estimated DM1 billion (euro526.29 million. The deal cleared EC notification.

· An investor group, comprising Club de Developpement and TriNova planned to acquire an undisclosed minority stake in Aktor Interactive, Internet service provider, for Ff5 million.

· An investor group comprised of 3i and Lion Expansion, a unit of Credit Lyonnais, acquired an undisclosed minority stake in Sofrer, Nanterre-based provider of telecommunications services to telecom operators for, Ff120 million. 3i paid Ff90 million for the stake and Lion Expansion paid Ff30 million.

· An investor group comprising 3i Group and Apax Partners of the UK acquired a 40 per cent stake in Procar.com, Internet car retailer, for Ff40 million (euro3 million). 3i Group and Apax both paid Ff20 million for the stake.

· BMP Mobility AG acquired a 15% stake in Speedlink GmbH Berlin, provider of Internet services.

February

· An investor group comprised of Baker Communications Funds, Bear Stearns Merchant Banking, Fleet Equity Partners, Morgan Stanley Dean Witter of the US, Residentie Investments and Paribas Deelnemingen, acquired an undisclosed minority stake in InterXion, provider of telecommunications services, for Dutch Guilders 220.37 million.

· An investor group comprising Knorr Capital Partner AG (KCP) and Medicis AG (MA), acquired a 26% stake in Bioropa GmbH, Cologne-based provider of brokerage services over the Internet. KCP acquired a 12% stake and MA acquired a 14% stake.

· Techno Nord VC GmbH acquired a 20% stake in Handy.de, Internet service provider, for DM4 million.

· A management-led investor group backed by Soros Private Equity Partners LLC of the US, acquired Storm Telecommunications Ltd, a unit of Norwegian state-owned Telenor AS. Telenor owned about 68% of Storm, with IXC Communications Inc (19%) and Clarion Resources Communications (12%) owning the remainder.

· New Economy Ventures, a fund managed by the investment bank Lohmus, Haavel & Viisemann, acquired a 22% stake in CV-Online, provider of Internet-based personnel services, for an estimated kroons 6 million.

· Telecom Access Ltd, a management buy-in vehicle, acquired Europa Communications, telecommunications reseller.

· The management-employee company Communication Equipment acquired the Blagoevgrad Communications Plant from state-owned Incoms Telecom Holding Co for Bulgarian levs 5.5 million.

· IQ Capital AG acquired an undisclosed minority stake in Newtron AG, Frankfurt-based provider of Internet services.

· An investor group led by Callahan Associates International of the US acquired a 55% interest in the North Rhine Westphalia cable network of Deutsche Telekom AG.

· An investor group comprising Deutsche Effecten und Wechsel Beteiligungsgesellschaft AG {DEWB}, a unit of Thuringia’s Jenoptik AG subsidiary, T-Venture, a unit of Deutsche Telekom AG, and Woelbern Consult, acquired a 19.99% stake in Ivistar Kommunikationssysteme AG, Berlin-based provider of communications services.

March

· DB Investor, a unit of Deutsche Bank AG, acquired the entire share capital of SMATcom AG, Raunheim-based owner and operator of cable TV networks.

· A management-led investor group acquired Bulgarian Contaktni Elementi, provider of telecommunications services, from state-owned Incoms Telecom Holding Co for Levs 0.391 million ($0.205 million).

· An investor group comprised of Callahan Associates International LLC of the US, Blackstone Capital Partners III of the US and Capital Communications CDPQ of Canada, a unit of State-owned Caisse De Depot Et Placement Du Quebec, planned to acquire a 55% interest in the Baden Württemberg cable TV network of Deutsche Telekom AG.

· A US-based investor group comprising private equity firm Clayton, Dubilier & Rice (CDR), Cisco Systems and various other investors, acquired an 81 per cent interest in Italtel SpA, network switching company, from Telecom Italia SpA, for Lira1.549 trillion (€800 million). CDR would acquire a 51% interest, and Cisco 19%.

· A management led investor group backed by Initiative et Finance Investissement, a unit of Caisse Centrale des Banques Populaires’s Natexis SA subsidiary, acquired Export Telecom Service and On-Line Service, Toulouse-based providers of telecommunications services. A new holding company ETOL was formed. ETOL controls 100% of ETS and a 70% majority interest in OLS with the management holding the remaining 30% stake.

April

· An investor group, Sound Holding, whose shareholders are Nordic Capital (48%), Polaris Private Equity (32%) and Intermediate Capital Group (17%), acquired an 80% interest in Microtronic A/S, Roskilde-based manufacturer of hearing instruments.

· Brandts Klaedefabrik A/S of Copenhagen acquired a 60% interest in C P Uniq ApS, Malov-based provider of Internet services.

· Adriatic Net Investors, US-based venture capital firm, acquired a 51% interest in Internet Service Provider Iskon Internet, for Kunas 40.717 million.

· An investor group comprising Guillemot Ventures (GV), Guillemot Brothers (GB) and Ubi Ventures (UV), all joint ventures between Ubi Soft Entertainment SA and Guillemot Corp, acquired a 34% minority stake in YacCom SA, Rennes-based provider of mobile telecommunications services. GV acquired a 12% minority stake, UV acquired a further 12% minority stake and GB acquired the remaining 10% minority stake.

· Tec Plus III, a venture capital fund of Granville Private Equity Spain, a unit of Granville Baird, together with Ibersuizas and Catalana d’Iniciatives acquired a 58% interest in Software de Medicina, web design company, for Ps350 million. The management team of Javier Vinals and Carlos Lage retained the remainder of the company.

· Ledstiernan Investment AB agreed to acquire a 35% stake in Hot Vision, web television production company for kronor8 million.

· Brandts Klaedefabrik A/S of Copenhagen planned to acquire a 40% stake in Ivanoff Interactive ApS, Valby-based provider of interactive entertainment and educational software.

· Brandts Klaedefabrik A/S of Denmark acquired a 45% stake in 3D Festival, Lund-based website and international trade festival, from Andante Holding Group.

May

· An investor group, through Sound Holding, signed an agreement to acquire Kirk Acoustics A/S, Horsens-based manufacturer of acoustic solutions for mobile phones. Shareholders in Sound Holding were Nordic Capital (48%), Polaris Private Equity (32%), Intermediate Capital Group (17%) and Erhervsinvest Nord (3%).

· B&S, venture capital company, acquired a 20% stake in Sit Telecommunicazioni, a unit of Biokeparm Inc’s subsidiary Marcucci Group, for L35 billion.

· A management led investor group backed by Triton Beteiligungs GmbH of Germany planned to acquire Datentechnik AG, Vienna-based provider of telecommunications services, from Siemens AG of Germany.

· G&J Multimedia Ventures GmbH, a unit of Bertelsmann AG’s Gruener & Jahr AG subsidiary, acquired a 45% minority stake in Active-Film.com, Frankfurt-based multimedia company.

· Gazeo Ventures acquired an undisclosed minority stake in NetBooster, Versailles-based Internet service provider.

· BMP Mobility AG acquired a 20% stake in Indecom GmbH, Friedrichsdorf-based provider of Internet services.

· Abakus.com AG acquired an undisclosed minority stake in M-Technologies AG, Karlsbad-based multi-media company.

· Ubi Ventures, a joint venture between Ubi Soft Entertainment SA and Guillemot Corp, acquired a 20% minority stake in Ludopia Interactive SA, Paris-based provider of ecommerce services, for Ff6.57 million (euro1 million).

June

· 3i acquired an 8.5% minority stake in Wallstreet:Online GmbH, Dusseldorf-based Internet service provider specialising upon the news in the financial world.

· A management-led investor group backed by BCA Capital Management AB, a unit of Balance Corporate Advisors AB, acquired the entire issued share capital of Syntagma AB, Malmo-based provider of automation online systems to the consumer products sector, in a management buyout transaction, for kronor63 million.

· Media Holdings Ltd, a management buy-in vehicle backed by Friends Ivory & Sime Private Equity PLC, acquired Channel Television Ltd, Jersey-based television company, from Channel Television Group Ltd, for £16.31 million.

· Daimler Chrysler Venture GmbH, a unit of Daimler Chrysler AG, acquired a 7.5% stake in MCN Telecom AG, Bad Homburg-based provider of telecommunications services.

· Dynamic I-T Inc of the US acquired BankNet Kft, Budapest-based provider of telecommunications services.

· Guillemot Ventures acquired a 10% stake in Wokup!, Internet service provider.

July

· A management buy-in backed by 3i acquired Kilbryde Communications Ltd.

· A management-led investor group backed by Lloyds TSB Development Capital acquired Quantel, Newbury-based manufacturer of image processing equipment for the television industry, from Carlton Communications PLC for up to £108 million. The consideration consisted of an initial £51 million, plus up to a further £57 million in cash in profit-related payments.

· Apax Partners & Cie Ventures SA acquired a 21% minority stake in BFM, owner and operator of radio station.

· A management-led investor group backed by 3i acquired Autocue Holdings Ltd, London-based autocue manufacturer, from Cue Corp of the US for £20 million.

August

· A management-led investor group acquired a 23.33% minority stake, or 2,637,787 ordinary shares, in Helkon Media Group, Munich-based provider of motion picture production services, from Endemol Entertainment NV of the Netherlands, for an estimated guilders 135.12 million.

· A management-led investor group conditionally agreed to acquire an 80.65% interest in Quadrant Visual Solutions Ltd, Nottingham-based audio and visual systems and services company, from Quadrant Group PLV’s Quadrant Video Systems PLC subsidiary for £0.1 million.

October

· PGA Invest of Chasseneuil du Poitou acquired a 34% stake in Lnet Multimedia, Ste Luce sur Loire-based provider of web design services.

· A management-led investor group acquired Palcon Systems Ltd, environmental control panels design, supply and installation panels company, from Widney PLC for £0.68 million in cash.

· An investor group comprising Mr Mike Luckwell and Odyssey Venture Partners Ltd (OVP) agreed to acquire a 75% interest in Invest TV Ltd, London-based provider of financial information via a television channel and the Internet, from Convergence Holdings PLC.

· A management-led investor group acquired the British Home Networks (BHN), unit of Finnish telecommunications group, Telest Oy (TO). Terms were not disclosed. Originally, in February 2000, TO disclosed that it was seeking a buyer for its BHN unit.

November

· Barclays Private Equity, a subsidiary of Barclays PLC, acquired an 80% interest in CRP Group Ltd (CRP), Skelmersdale-based manufacturer of products for the offshore oil and gas industry, for £120 million. CRP’s products include cable protection, thermal insulation and subsea buoyancy equipment. 58% of the interest was acquired from HSBC Private Equity and 22% from CRP’s directors. Previously, in November 1998, CRP was the subject of a management buyout backed by HSBC Private Equity for £70 million.

· Sarantel Ltd, a management buyout vehicle, acquired the UK dialectric antenna division of Symmetricom Inc of the US. 3i provided funding of £5 million and Foresight Technology VCT invested £1 million for a total funding value of £6 million and an estimated consideration of £6 million.

· A management-led investor group acquired Portable Add-ons (UK) Ltd from the receivers of Datrontech Group PLC (DG) for an estimated £0.4 million. Previously, DG was placed into receivership, with accounting firm Deloitte & Touche appointed as receivers to seek buyers for its assets.

Source: Thomson Financial Securities Data