Global infrastructure investor planning to acquire rural fiber operator

Challenge

The client was a consortium of global infrastructure investors seeking to expand its portfolio of fiber assets.

The goal of the project was to support Altman Solon’s client in the acquisition of a fiber player with a rural footprint  and a significant deployment plan. The client was interested in an assessment of the target’s key business plan assumptions; deployment and go-to-market approach; commercial, technical, and operational performance; and outlook for key business plan parameters.

Solution

The project consisted of commercial and technical due diligence modules.

A core component of the commercial due diligence was B2C and B2C municipality-by-municipality based target’s addressable market estimation. It took into account factors like existing level of high-speed broadband (DSL based and coax cable), subsidies availability, distance to an own backbone network or size of businesses in the near-net for the B2B case. Once market potential has been established, Altman Solon focused on further analyses like an assessment of:

• Target’s deployment capacity (singed contractors) and capability (pipeline development) to deliver the plan (homes passed development over time)
• Penetration development outlook depending on an implied fair-share, future business model and brand perception, also supported by a nationwide customer survey
• Fiber deployment cost development depending on an area household density, soil and surface type as well as labour cost future evolution

The focus of the technical due diligence was placed on an assessment of the network structure, including main backbone routes lease contracts commercial terms assessment, network utilization and performance, and key processes around network deployment and operations.  The diligence also explored the IT landscape, including a review of key ongoing projects. The team also performed site visits in two different geographical regions.

Results

Altman Solon challenged selected sell-side assumptions and provided a detailed revenue and cost basis analysis supporting the client’s buy-side model covering amore than 10-year period.  The process resulting jn a successful acquisition for the client

Detailed addressable market estimation helped to define the total homes passed potential for the target. Analysis of past performance in conjunction with the current and planned deployment capacity set the cap on the maximum annual homes passed rollout. Penetration levels have been assessed based on an assumption around future business model (retail vs. wholesale only vs. mix scenario). Together with an ARPU analysis, the analysis helped to estimate future revenue potential for the company. Cost and CAPEX analyses supported by the technical due diligence helped to estimate overall business profitability going forward and were essential components of the client’s valuation model.

Altman Solon also supported the consortium members with numerous additional analyses for their respective investment committees.