LONDON Feb 8 Private equity firms are reviving
plans for a potential 10 billion pound ($15.7 billion) buyout of
the UK's biggest mobile operator EE, encouraged by recent deals
like Virgin Media and Dell.
Big buyout companies including U.S.-based KKR and
Europe's CVC Capital Partners are trying again to
persuade banks to help fund a deal they have been unable to get
off the ground for the past year, people familiar with the talks
They hope that a recent pickup in debt and equity markets
could help them broker a more attractive alternative to the
stock market listing that EE's owners France Telecom
and Deutsche Telekom are planning to better reflect
the value of their UK joint venture.
Both Liberty Global 's $15.75 billion acquisition
of British cable company Virgin Media and Dell 's buyout
led by co-founder Michael Dell and private equity firm Silver
Lake involved a significant portion of debt funding and could
provide a benchmark for private equity funds interested in EE,
the people said.
EE, formerly known as Everything Everywhere, is the biggest
mobile operator in the highly competitive British market with
more than 27 million customers.
"Virgin has created a window for very big deals and funds
are currently contacting banks again to discuss business plans,
technical possibilities etc." said one of the people who has
been approached by some of the funds.
Two rival private equity consortia KKR and Apax on one side
and CVC and Blackstone on the other, are holding early-stage
talks with banks and other possible investors, but any bid for
EE remains hypothetical, the people said.
To get funding for an EE buyout, private equity firms would
have to show how they aim to make money in Britain's mobile
market, one of Europe's more competitive with operating margins
in the low- to mid-20 range compared with mid-30s for France and
In recent quarters, margins have nudged down at all of
Britain's big three mobile operators - EE, Vodafone and
Telefonica's O2, as unlimited voice and data plans are
becoming more common, pushing prices down.
Bankers say the private equity firms are seeking debt of
around 4.5 times 2013 forecast EBITDA (earnings before interest,
tax, depreciation and amortisation), or 6 billion pounds.
"I am not saying it's easy, 6 billion pounds of debt is a
big stretch. But it's feasible", one of the lenders said.
The size of the 3-3.5 billion equity part of the funding,
which the buyout firms have raised from investors, would be the
real problem, he said.
In the deal for Dell, private equity firm Silver Lake
Partners is betting its biggest ever equity commitment of about
$1 billion. [ID:nL5N0B1HE1}
Plugging the equity gap for EE would require at least three
firms to team up, another banker said.
This type of consortium approach has not succeeded since
Danish telecom group TDC's buyout for 9.1 billion euros ($12.18
These deals tend to be difficult to execute because private
equity funds' backers, known as limited partners, usually prefer
each fund to invest in a range different assets to spread risk,
rather than take large bets on a single company.
It is also not clear whether EE's owners could be convinced
to completely exit the UK, which although a tough market,
remains an important one for them in terms of size.
EE's owners are expected to appoint banks in the coming
weeks to advise on an possible initial public offering (IPO)
this year, bankers said.
EE and all of the private equity firms declined to comment.