Tag Archives: EV EBITDA multiple

Fidelity’s clever move on COLT

On Friday, Fidelity made a 190 pence offer, which is a 21% premium to the previous day’s close, for the approximately third of COLT that it doesn’t own. After years of underperformance and a series of restruturings, COLT has been long looking for a positive future. It bought the smaller Fidelity owned Asian carrier KVH last year (see previous posts here and here). COLT’s core European business has been slowly moving to higher growth and margin data and network business, as the graph below shows.

click to enlargeCOLT Telecom Revenue & EBITDA Margin 2006 to est2016

Fidelity’s offer values the debt-free business at £1.7 billion (or €2.4 billion or $2.7 billion at current FX rates) which I estimate to be 7 times 2015 EBITDA or 6.44 times 2016 EBITDA estimates (assuming 2015 EBITDA of €335 million and a 2016 10% EBITDA YoY growth). The independent directors have called the offer too low but haven’t made a recommendation due to the lack of options for minority shareholders.

From Fidelity’s viewpoint, this looks like a clever move to force any likely bidders out into the open or, failing any bidders emerging, to take the firm fully private at an attractive price. Robert Powell over at telecomramblings speculates that other European carriers such as Interroute or the US based Level 3 may be possible bidders. It will be fascinating to see how this one plays out.

COLT calls time

COLT announced plans this week to cut €175 million of low margin voice wholesale business and take a €30 million restructuring charge in an attempt to address declining margins and halt operating cash burn, issues which I highlighted in a previous post. The stock took a hit and is down about 10% on the month. Press reports, like this FT article and this Guardian article, speculate that majority shareholder Fidelity is losing patience and the business is effectively for sale. Robert Powell at Telecom Ramblings is also speculating on potential buyers.

The graph below shows my rough estimates of the revenue and EBITDA margin (excluding restructuring charges) for 2014 and 2015 based upon COLT’s guidance (2015 is purely based upon my guestimates). The execution risk in the restructuring based upon the firm’s recent history doesn’t match up against any potential M&A upside in my opinion. This one is best to watch from the side-line. It should be interesting.

click to enlargeCOLT Telecom 2006 to 2013 Revenue & EBITDA Margin 2014 & 2015 forecast