Warburg Pincus, KKR explore UK broadband asset sales amid fibre sector strain

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Warburg, KKR UK broadband sales

Highlights

Warburg Pincus seeks buyers for Community Fibre, valued at about £2bn with 450,000 customers, while KKR is exploring a sale of Hyperoptic, serving over 400,000 customers.
CityFibre, the UK's third-largest broadband network, faces financial pressure with £3.7bn net debt as creditors test hedge fund interest in its debt ahead of potential restructuring.
3i wrote down more than €200mn investment in Germany's DNS:Net to zero in May amid sharply reduced lending appetite for fibre rollout businesses across Europe.

Sale processes emerge for major altnets

As first reported by Financial Times, Warburg Pincus has hired bankers and approached potential buyers for Community Fibre, while KKR has also contacted several prospective bidders for Hyperoptic. Community Fibre serves about 450,000 customers and, according to people familiar with the matter, is viewed as one of the more financially stable altnets in the UK market, with New Street Research estimating its enterprise value at about £2bn.

Hyperoptic serves more than 400,000 customers, according to people familiar with the discussions. Neither KKR nor Warburg is in a rush to complete a transaction, and the investors have also considered merging their companies, while Warburg is carrying out a broader review of plans for Community Fibre that includes a recently announced goal of expanding its network to 2mn homes.

James Ratzer, an analyst at New Street Research, says buyers are becoming highly selective about fibre assets and that Community Fibre is among the stronger businesses in the sector. TMT Finance has also reported that Community Fibre appointed JPMorgan to advise on strategic options.

Debt pressure reshapes the UK and European market

The sale efforts come as the UK's broadband sector remains under strain from weaker-than-expected fibre adoption and rising rollout costs. CityFibre, backed by Goldman Sachs and seen as a potential market consolidator, is also dealing with increasing financial pressure, with creditors to the group having approached hedge funds in recent weeks to test interest in buying its debt at a discount before any possible restructuring.

CityFibre, the UK's third-largest broadband network, has net debt of £3.7bn owed to lenders including NatWest and Lloyds, according to people familiar with the situation. At the same time, Telefónica and Liberty Global, the joint owners of Virgin Media O2, are seen as unlikely bidders for Community Fibre while they complete the £2bn acquisition of Netomnia announced in February.

Stress in the fibre market also extends beyond the UK. In Germany, 3i said in May that it had written down its investment of more than €200mn in DNS:Net to zero because of a material deterioration in lending appetite for fibre rollout businesses, while FitzWalter Capital is working with other creditors to take control of the operator and continues to target heavily indebted broadband providers for restructuring, cost cuts and monetisation of existing networks.

Our earlier article on Boots’ potential $10bn sale explained how its owners began exploring a sale of the UK pharmacy chain rather than pursuing a London IPO. We noted that improving UK sales and profit growth helped revive buyer interest, with both strategic and financial bidders weighing a possible deal.

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