Eurofiber

Eurofiber had all the hallmarks of a classic DH investment. It was originated through the Firm’s network of trusted advisors and acquired on a proprietary basis from family owners in the absence of any intermediary.

Eurofiber was the leading independent fiber-network operator with a unique platform to further increase market share and execute incremental value-accretive acquisitions. The deal team spent a significant amount of time building its industry knowledge and identified the strong tailwinds driving the growth in the Dutch fiber infrastructure market.

Under DH’s ownership, the company almost doubled its EBITDA to €80m and became a highly desirable asset for both strategic players and financial investors, in particular infrastructure investors. They were attracted by the combination of a predictable recurring revenue base and strong growth prospects. Ultimately, the investment delivered a 2.5x return to Fund V investors at a gross IRR of 35%.

Why was the investment made?

The long term growth of the fiber infrastructure market, forecasted at 7% per annum, coupled with the opportunity to accelerate the increase in Eurofiber’s market share through additional investment were the foundations of DH’s investment case.

Eurofiber’s B2B-focused business model was underpinned by long term contracts of up to 25 years and a high level of “stickiness” of its customer relationships due to the mission critical nature of its service offering. This meant that the business had very low churn unlike most consumer-focused telecom and cable operators. Its extensive network, spanning over 7,500km across the Netherlands and Belgium and connecting over 4,500 unique locations, provided a significant barrier to entry and the dense nature of this network meant that the company was well placed to leverage its scale and increase its customer base. In addition to the core corporate segment, Eurofiber was a leading provider of backbone solutions to the Dutch mobile operators and connectivity infrastructure for the government and not-for-profit segments.

DH spent a significant amount of time developing relationships with both the Wessels family, who had owned Eurofiber since 2006 – and with whom DH had links through our previous Fund V investment in Norit – and the management team. Management were keen to aggressively grow the business both organically and through consolidation and wanted a partner with both the capital and expertise to facilitate this growth.

It was on the back of these relationships and our strong reference list with other European family vendors and management teams that, despite strong historic interest from both strategic and financial buyers, both the family and management chose to work exclusively with DH. The Wessels family decided to re-invest a significant proportion of its proceeds in the business for a minority stake.

How was value created?

Continued organic growth

A key workstream of DH’s investment strategy was to aggressively support the organic expansion of Eurofiber’s network. In order to facilitate this, and in line with one of the core pillars of our investment philosophy, DH maintained a conservative level of leverage at acquisition in order to enable the bulk of future cash flows to be reinvested in the business. In addition to the core corporate fiber offering, the company successfully built strategic partnerships with all the large mobile operators to provide comprehensive backhaul solutions, developed a fiber-based SME proposition in cooperation with Vodafone, and launched a complementary datacentre offering.

Value accretive add-on acquisitions

A key part of DH’s thorough due diligence and investment evaluation process was to work with management to identify a focused list of add-on acquisition targets as well as clear plans of how to execute them.

As part of this, DH committed to support the company with additional capital. Ultimately, the three primary add-on targets were acquired in the Netherlands and Belgium. Together with management, DH extracted strong synergies from these acquisitions as well as expanding the company’s offering and cementing its position as the largest independent operator in the Netherlands.

Operational value enhancement

DH’s value enhancement team supported the management team in structuring and delivering a number of important projects. These included the development of operational KPIs, strengthening the sales and marketing function and an external contractor tender process which delivered substantial cost savings.

What was the outcome?

After only three years of DH’s ownership, Eurofiber had doubled the number of active customer connections and almost doubled EBITDA, established a successful buy and build track record and become the leading fiber asset in the Dutch ICT ecosystem. The company provided data infrastructure services to more than 3,200 customers across its wholly owned and unique nationwide open access network and two colocation datacentres. Approximately 40% of Eurofiber revenues and 60% of new business was generated by offering Dark Fiber services, where the company commanded a 75% market share.

Capitalising on its early mover status, Eurofiber focussed increasingly on enabling growth in the Smart Society, connecting “objects” including power stations, bus stops, bridges, traffic lights and CCTV cameras. Thanks to the major investment in the network under DH’s ownership putting in place further capacity, the network utilisation level of 37% meant that the company could continue creating significant economies of scale as the business grew further.

Exit

In May 2015, DH agreed to sell Eurofiber to Antin Infrastructure Partners at an enterprise value of €875m and completed the transaction within three weeks. This enterprise value equated to a forward EBITDA multiple of 11.0x which compared to the 8.5x that DH paid for the business. The realisation represented a gross IRR of 35% and a 2.5x cash on cash return to Fund V investors.