Invertia the 'myopia' of the bags with the telecommunications anticipates new investments of private funds in the sector

Telecommunications companies have earned confidence in the last two years of private capital funds (or venture capital), which have been the protagonists of an important number of investment operations in a sector that does not have the same support in the bags.A bet that, far from stopping, will remain for some more time.

"We do not foresee that the recent wave of private investment in the telecommunications sector stops, since private investors are taking advantage of the myopia of public markets," says Goldman Sachs in a recent report on the sector in Europe.

The entity analysts affect that in the last 18 months private investors have starred in more agreements -or attempts from them -that in the previous ten years, all with the aim of capturing the "hidden value" they see in the sectorof telecommunications.

In fact, according to Goldman Sachs calculations, in the second quarter of 2021 private capital investments in telecommunications companies reached 440.000 million euros, a historical figure that is well above, for example, of the 169.000 million euros of the first three months of 2015.

This commitment to the sector confirms not only that there is much private capital willing to invest right now, but also the fact that private investors, who often have investment horizons of even several decades, are finding a long -term valueIn telecommunications that the bags (with much shorter horizons) do not seem willing to pay.

In fact, the Goldman Sachs report points out that in public markets they still continue to punish telecommunications operators for the high investments they have to make in networks, as well as the limited yields they offer in the short term.

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Examples of this punishment have been the sharp fall of 8.3% recorded by Vodafone's titles last spring the day the company announced an increase in networks in networks or the reduction by half of the price of BT shares duelargely to your forecast to raise your investment in fiber deployment.

More than infrastructure

Another aspect that is key in this new investment wave is that the commitment of funds for the telecommunications sector is expanding beyond infrastructure assets, such as towers or fiber networks, which are initially attracted to investmentsof private capital given its high level of penetration and low competition.

However, after having conversations with private investors and the banking sector, Goldman Sachs believes that these are increasing.

For example, he points out that private investors are interested in investing throughout the operator's capital, not only in some of their assets, or even in companies that do not have infrastructure and are only service providers.Other companies in the sector that could capture their interest are cable operators that still serve in several European countries.

On the other hand, the report also indicates that another change in the renewed bet that private capital is making for the sector is in the motive of its investment, since it now has much less to do with the business restructuring and the cost cutsAnd more and more focuses on supporting a higher capital spending (capex) on networks to generate greater returns.

In fact, it ensures that there are many evidence that suggests that it is more likely that a private capital investor will support a higher expenditure level in the short term than markets.An example is that of the Danish TDC, the most important operator in the country, which was acquired in 2018 by the Macquarie firm and three Danish pension funds and that today invests more in the deployment of networks than any quoted operator.

In his opinion, this change of approach when investing in the telecommunications sector could have an impact on the decisions that governments must adopt when blocking or not an operation that takes out an incumbent operator of the stock market andbecome a private company.

Most relevant examples

The aforementioned TDC case is not the only one that shows the interest of funds in the large European telecommunications companies.Last November, the Risk Capital firm KKR announced its "non -binding and friendly" intention of presenting a public acquisition offer (OPA) by Telecom Italia (Tim)

The Italian incumbent operator is currently analyzing this offer, whose value amounts to about 10.800 million euros, in order to "properly" evaluate the extension, content, conditions and consequences of this sample of interest carried out by KKR.

But it is not necessary to leave Spain to verify the interest of the funds in the telecommunications.A little over a year ago, KKR, Providence and Cinven bought the fourth convergent operator of the country, MasMóvil, for about 3.000 million euros, which ended its more than eight years as a quoted company.

In response to infrastructure assets, there are numerous agreements seen in recent years between operators and funds to create joint companies that promote networks.For example, those achieved between Allianz and Telefónica and Deutsche Telekom and IFM in Germany;Infravia and Iliad in France;UNIVIA and MASMOBO in Spain or Telecom Italia and KKR in Italy.

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