Spain’s MasMovil to be acquired in €5bn private equity buyout

Via Financial Times

Spanish telecoms operator MasMovil is to be acquired by a trio of private equity firms in a €5bn takeover that is one of the biggest since the pandemic began.

Providence Equity Partners, Cinven and KKR have offered to pay €22.50 a share for MasMovil, the Spanish operator said in a statement on Monday. The deal values the group at €3bn and gives it an enterprise value, including debt, of almost €5bn.

MasMovil, which has consolidated smaller brands including Yoigo, Lyca and Lebara in the past five years, has been a rare success story in the low-growth European telecoms market. Its rapid expansion has turned it into a significant force in the Spanish market.

The offer from the private equity consortium is a 20 per cent premium to where MasMovil’s shares were trading and more than five times the value of the group’s stock four years ago. MasMovil shares surged 23 per cent on Monday.

The deal would be “beneficial for MasMovil’s shareholders and other stakeholders,” the Spanish group said in a statement.

The private equity firms declined to comment.

The deal, which is still subject to shareholder approval, is the largest take-private of a listed European telecoms company in more than two years. It could also unleash consolidation in the Spanish telecoms market as the country’s most aggressive operator secures heavyweight backing.

Talks between Providence, Cinven and KKR over a MasMovil buyout began at the start of the year, but were delayed by the pandemic as the firms waited to see how the business would cope.

The deal is a sign of how private equity firms, which have spent recent months fortifying businesses they already own, are increasingly ready to take on new acquisitions.

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The transaction is expected to use leverage of about 4.5 times earnings before interest, tax, depreciation and amortisation, which is lower than that in many private equity deals struck before the pandemic, according to two people familiar with the matter.

MasMovil’s stock boomed between 2014 and 2018, when it peaked at more than €25. It has since drifted as investors focused on the group’s debt of €1.8bn and cash generation rather than its growth potential, which has triggered the interest from the private equity industry.

Providence is a long-term investor in the Spanish telecoms sector. It already owns a 9.2 per cent stake in MasMovil having first invested in the business in 2016. This takeover will make it the largest shareholder in MasMovil. Providence has previously backed cable company Ono which was sold to Vodafone.

MasMovil has a 14 per cent share of the Spanish mobile market and a 11 per cent share of the broadband one. It grew its service revenue 20 per cent in the first quarter.

MasMovil competes with Telefónica, Vodafone, Orange and Basque player Euskaltel — which has rebranded as Virgin. Press reports last year pointed to talks between MasMovil and Vodafone, which has struggled in Spain, over a potential €8bn deal but both companies denied the story.

Jerry Dellis, an analyst with Jefferies, said that MasMovil’s position at the low-end of the Spanish market could strengthen its hand against larger rivals as the pandemic forces consumers to look for better packages.

“Running MasMovil outside the public glare could permit management to drive growth harder and maximise negotiating power into any future consolidation endgame,” he said.

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MasMovil has also made tentative moves outside of Spain having acquired a small player in neighbouring Portugal.

The move on MasMovil is the latest in a series of deals for KKR, which agreed to inject $750m into the debt-laden cosmetics company Coty last month and snapped up UK recycling company Viridor in a £4.2bn transaction in mid-March.

KKR has been active in European telecoms having acquired UK “altnet” Hyperoptic in 2019 and sold German fibre player Deutsche Glasfaser this year. In Spain, it acquired a 40 per cent stake in Telefonica’s infrastructure arm Telxius in 2017.

The prospect of further consolidation in European telecoms markets was raised after a top European court last week annulled the European Commission’s 2016 decision to block Three’s takeover of O2. Spain, as a five-player marker, has been tipped for consolidation on the back of ruling.