Q&A

Cinven

TMT partner team David Barker on Ziggo’s float and opportunities in the cable market.

by . .

You recently listed Ziggo. What was the most challenging aspect of preparing it for public life?

Two and a half years ago we had integrated the businesses (Kabelcom, Casema and Multikabel, which were acquired to form Ziggo) and were starting to see good growth. At that point we started to think about exiting. In order to ready the company we needed to amend the capital structure to one that would be acceptable in a public market environment. We issued high-yield bonds in a number of tranches designed to remove the mezzanine from the balance sheet, as mezzanine isn’t a common form of debt in the public market. This also enabled public market investors to familiarise themselves with the company through the bond market.

It was a carefully thought-through approach and we wanted to make sure the company was properly prepared. We also appointed non-executives on to the board so that it met the criteria for public company status. The most challenging aspect was the markets being right. We were in a position to IPO last summer but at the beginning of this year, the markets looked a little better. Ultimately it was the strength of Ziggo that gave us the confidence to take it public.


What were the reasons behind Ziggo’s success?

There were four elements. First, the origination of the deal. This was not a plain vanilla buyout – it required major M&A planning as we merged two large businesses (Kabelcom and Casema) and a smaller one (Multikabel) together. The businesses had different ownership positions. The key to doing the deal originally was our relationship with Kabelcom, which was owned by Dutch utility company Essent. We worked with Essent trying to find a way to acquire Casema and put it together with Kabelcom. When the Casema sale was announced in 2006, Essent also decided to sell Kasema. It was our relationship with Essent and  knowledge of Kabelcom which gave us the insight and angle to believe we were the right buyers.

Second, we approached the merger of the three businesses in a very particular way. Typically, when one business acquires another, the most obvious way to create synergies is by taking out cost bases that are duplicated. We didn’t do that. Instead we removed all of the operational processes and put in place completely new ones that were fit for purpose for a much larger business. That took two and a half years, including 18 months of pre-planning.

For three or four months we focused on implementation and what was going on in each area. We had regular presentations to the board from the management and integration team. With the integration effectively complete by the end of 2009 we were able to start thinking about exit.

The third aspect was amending the business’s capital structure, as discussed previously. Finally, the fourth element was taking the operations forward. When we acquired the business in 2006, there was a well-invested network in the Netherlands but a surprisingly basic television offering. Unlike the UK, where the TV offering includes personal video recorders (PVR) and fully digital signals, in the Netherlands it was mainly analogue, with no PVRs. We worked with management to create a more attractive offering. Equally, broadband was at a much slower speed and we worked together to make sure the customer product was best of breed. 


Cable companies have been a sweet spot for TMT investments recently. What other sub-sectors are you finding interesting?

We are living through a digital revolution where demand for data into homes is huge. A big feature coming through is that the average home is looking for higher data speeds. Whereas 15 years ago we were happy with dial-up speeds, now there is a huge amount of video being streamed through broadband. The basic telephone wires are not fit for purpose but cable is an excellent medium for delivering that service.


With the proliferation of digital channels, what opportunities have been created for broadcast media investments?

The world has changed and digital has brought into significance the way that television has come into homes. We are moving towards interactive television. Nowadays it’s much more of a “lean forward” experience and that puts satellite at a disadvantage as it can only provide a one-way service, giving two-way suppliers the upper hand.


How do you go about originating deals in the TMT sector?

At Cinven we have sector-focused teams. We look at investment opportunities in three ways. First, top-down, looking at trends in the sector and areas in which we would like to invest. Second, bottom-up – businesses that are likely to become available in the next 18 to 24 months. We then map these to find the most attractive targets. Finally, we talk to managers and key players in the industry to ensure constant dialogue and keep ourselves in the flow of information.


Geographically, it seems as though different markets have evolved at different speeds – mainly with regards to cable and telecoms operators. Does this provide firms with an opportunity?

There is no such thing as a European cable market. Each country has very different cable positions that have developed in different ways. Regulators take different stances and there are different starting points.

For example, in the Dutch market, originally the local councils decided they wanted to preserve the landscape. Rather than erecting aerials they laid cables. That created a well-invested network reaching around 90 per cent of homes. Because of its historic background, cable is the natural route for TV in the Netherlands. Compare that
to the UK, where Sky and Freeview are the main routes and Virgin is the cable-based challenger.