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Private equity firms Warburg Pincus and KKR are exploring sales of their UK fibre broadband businesses in moves that will test investor appetite for a sector where many operators are struggling.
Warburg has hired bankers and approached potential suitors for Community Fibre, which serves about 450,000 customers and is one of the most financially stable “altnets” in the UK market, according to people familiar with the matter. New Street Research estimates the London-based operator has an enterprise value of about £2bn.
KKR had also made contact with several potential buyers of its broadband provider Hyperoptic, which serves more than 400,000 customers, three of the people added.
The moves come as the UK’s broadband industry is under pressure after lower than expected customer uptake of fibre services and the rising cost of building out a network.
Goldman Sachs-backed altnet CityFibre, a UK operator with ambitions to consolidate the market, has also been dealing with mounting financial challenges.
Several creditors to the UK’s third-largest broadband network — which has net debt of £3.7bn from lenders that include NatWest and Lloyds — have approached hedge funds in recent weeks to gauge their interest in buying its debt at a discount ahead of a potential restructuring, according to three people familiar with the situation.
CityFibre is not the only potential suitor that may struggle to buy Community Fibre in the near term. Telefónica and Liberty Global, joint owners of Virgin Media O2, are unlikely to bid while they are closing the £2bn acquisition of rival provider Netomnia announced in February, according to people familiar with the matter.
Neither KKR nor Warburg, which have also considered merging their companies, were in a rush to do any deal, people familiar with their thinking said. Warburg was conducting a wider assessment of its plan for Community Fibre, one person added, which included a recently announced target to expand its network to 2mn homes.
“Buyers are now very selectively focused on good fibre assets — and Community Fibre is one of those,” said James Ratzer, analyst at New Street Research. TMT Finance reported that Community Fibre had appointed JPMorgan to advise it on strategic options.
Separately, private equity investor 3i Infrastructure last month admitted defeat on its investment in the fibre sector in Germany, where operators are also struggling.
Distressed debt investor FitzWalter Capital, which owns around 50 per cent of DNS:Net’s debt, is now working with other creditors to take control of the German fibre operator from the FTSE 250 group, according to people familiar with the matter.
3i Infrastructure said in May that it had written down the value of its €200mn-plus investment in DNS:Net to zero due to a “material deterioration in lending appetite for German fibre rollout businesses”.
FitzWalter is seeking to capitalise on the distress in the broadband sector. In January, it swooped on struggling London-based provider G.Network, swiftly put it into administration and bought it back shorn of its debts.
The firm is targeting heavily indebted providers with the goal of restructuring them, cutting costs and monetising their existing networks rather than building out further.
Warburg, Telefónica, Liberty Global, 3i Infrastructure, JPMorgan, CityFibre, KKR and FitzWalter declined to comment.
Additional reporting by Alexandra Heal in London
This article has been updated to reflect that 3i Infrastructure, not 3i, held the investment in DNS:Net
