No CEO in the world is going to say he has not been busy, but when David Blunck, head of Invitel Group, tells you that, you tend to give him rather more credence; in the last six months, the sale of the residential business has been announced, and the group itself was bought by the China-CEE Fund. Now the group is turning its eyes on future acquisitions of its own.
In 2015/16, Invitel Group went through a process of splitting its residential and corporate businesses into two separate organizational and legal entities, Invitel Zrt. for residential clients, and Invitech Solutions Zrt. for the corporates. While there were some synergies lost, there was more to be gained from the separation, Blunck insists.
“Residential customers have much different needs and technologies than customers in the corporate space,” he explains. “We were looking to optimize ourselves to serve two separate markets. In the year since the separation we have seen real benefits in specialization, where we can truly focus on the customers in both cases.”
So, the key driver behind the separation was a customer focus, the CEO insists, and he says the group’s new owners, the China-CEE Fund, were in full agreement with the strategy of growing both Invitel and Invitech Solutions in parallel.
“When we took that step to separate the two businesses, we had also created the essential pre-condition for a partial sale as a byproduct, even though that was not our primary motivation.” Both shareholders and management saw a compelling investment case for both parts of the group.
Plan “A”, as Blunck puts it, was to continue operating both businesses as separate entities across the horizon of the China-CEE Fund investment, a policy that was made clear to the market.
“Paradoxically, the very fact that we were not looking to sell and had a credible plan “A” to grow the Invitel residential business made it a more attractive proposition to the market. There was no ‘for sale’ sign out. You always want what you can’t buy; it is human nature, and it applies with investments as well.”
Into that space came ambitious Romania-based telco Digi. It made what Blunck calls an unsolicited “credible offer” for the residential business. Just as importantly, Invitel Group felt assured both parties were committed to an efficient process “so the deal would either succeed or fail quickly, and not become a distraction from Plan ‘A’”.
Although still subject to competition authority approval, expected by March of next year, the EUR 140 million deal was completed in a matter of weeks.
“We achieved what we wanted from the talks; a fair valuation of the residential business. Part of the deal was an agreement by Digi for a period of ten years to continue to purchase from Invitech the level of services Invitel had been receiving in network and IT services support. That comes to HUF 2.8 billion per year. It is a good outcome for Invitel, because the business is in the hands of the region’s most dynamic operator, with the scale to compete in today’s very competitive residential landscape. Invitech has a long-term agreement with Digi to provide services, and can focus management time and capital on growing the B2B business.”
The owners, China-CEE Fund, have turned down the opportunity to extract capital from the sale via a dividend recap, preferring instead to invest in Invitech Solutions, Blunck says.
With the residential part of the business no longer in the picture, what will happen to the group name? “That’s a good question. We haven’t given it much thought, but we like the sound of Invitech Group,” says Blunck. “The ‘group’ part is still relevant because we are on the hunt for acquisitions in the B2B space, to grow our national optical and infrastructure presence as well as our IT services capabilities. We have several acquisitions in the pipeline. We want to grow and hope to close two or three acquisitions in the next year.”
Invitel Group itself was acquired by the China-CEE Fund in March for EUR 202 million. “The motivation for that sale was that former owner Mid-Europa Partners had reached the end of the typical PE investment cycle. Mid-Europa brought the business in 2009, and in Private Equity they often talk about the ‘seven-year itch’. So, given the dynamics of the investment cycle, it was the natural time to look at things again when we received an unsolicited approach from China-CEE Fund.”
Blunck says the fund is a good match for Invitel Group, sharing a similar strategic approach and having a mission of investing in infrastructure providers. As with Digi, the earlier deal was also done quickly (over a three month period last fall) with no drawn out process to distract management from the business of running the business.
“One thing you learn working for private equity investors is how to run sales processes, so that helps. There was also a constructive attitude, no one was trying to play games, it was very results orientated. And it was a clean exit for the former shareholders, as they were able to sell the whole company.”
For Invitech Solutions, Blunck says, things look positive. “We are growing revenue, and are having had a good year. Unlike Invitel Group overall, which has not been profitable from an accounting point of view, Invitech is book profitable. Invitech generates cash as well as net income. Finances are stable, which means we can get a balance between the capital invested in the company and returns in terms of the value added for customers.”
And, as one of the founders of the 5G Coalition that aims to make Hungary a world leader in the next generation of mobile provision, he sees much more growth in the future.
“The promise of 5G is hyper-connectivity – ubiquitous, ultra-high speed with very little delay, what is known as high bandwidth and low latency in the industry jargon. A denser base station network (at least ten times more than what we have now) and the fiber optics to connect to them are the two preconditions for the 5G revolution. Both elements are very expensive, and that is where Invitech Solutions can help – in providing network and IT infrastructure in the background. We are enablers.”