Cinven, a European private equity firm, through the Seventh Cinven Fund, received approval from CADE, Brazil’s antitrust regulator, for its previously announced equity recapitalization of Ufinet International, a dark and enterprise fiber provider in Latin America, at an enterprise value of €2.5bn. As part of this recapitalization, Ufinet International’s equity ownership will be comprised of Cinven with a 51.5% controlling stake, the Abu Dhabi Investment Authority (ADIA), a sovereign wealth fund, with a 29% ownership interest, and Enel SpA, an Italian utility company, which will retain a 19.5% equity participation.
Since 2014, Cinven has been a shareholder in various forms of Ufinet, beginning when Gas Natural Fenosa sold the company to the Fifth Cinven Fund for €510m. Subsequently, in 2018, the Sixth Cinven Fund acquired majority ownership of Ufinet International, which is now concluding, as the Seventh Cinven Fund gains control.
Finally, closing of the transaction is expected in Q1 2022, which remains subject to the consent of various regulatory bodies, such as Brazil’s telecommunications agency, ANATEL.
Ufinet International – Overview
Ufinet International is a dark and enterprise fiber provider which operates across 17 countries and 2.0k+ cities in Central America, South America, and the Caribbean. The company’s dark and enterprise fiber services comprise ~90% of its revenues, while fiber-to-the-home (FTTH) and small cells cover the remaining ~10% of revenues.
Ufinet International manages 56k+ miles (90k+ kilometers) of fiber optic cable. As shown above, this network begins in Mexico and traverses down through Central America via Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica, and Panama. Additionally, in South America, Ufinet’s network extends to Colombia, Ecuador, Peru, Chile, Paraguay, Brazil, and Argentina.
Throughout these countries, Ufinet combines its national and international fiber optic networks via metro (intra-city) and long-haul (inter-city) connections.
Over time, through 9 bolt-on acquisitions, Ufinet International has expanded its network in Latin America. Specifically, these purchases included Nedetel in Ecuador, Netell and NB Telecom in Brazil, amongst others.
Services and Customers
Ufinet International provides metro and long-haul services including dark fiber (lease and IRU) and private lines which utilize ethernet, wavelength, and SONET technology. Customers, such as multi-national telecom operators, procure these services on long-term wholesale contracts.
Additionally, Ufinet offers fiber-to-the-home (FTTH) services to telecom operators in Latin America under an open and network-neutral model.
Financials
Enel SpA discloses that, in 2020, Ufinet International generated revenues of ~$250m USD (~€203.5m). Additionally, by the time of Ufinet’s most recent sale (see below), in December 2021, Ufinet International was reported to be generating ~€160m of EBITDA annually.
Investment Thesis
Cinven, ADIA, and Enel plan to enable Ufinet International to expand its fiber footprint and become the largest neutral operator of telecommunications infrastructure in Latin America. To effectuate this plan, the group intends to capitalize on the following trends in fiber infrastructure:
- Businesses increasingly using high-speed connectivity, which drives incremental demand for fiber
- Operating in nascent markets of Latin America, which have strong growth trajectories for data consumption. Indeed, this is driven by increased usage and penetration of fixed broadband, mobile broadband, and data centers across the region
- Geographic expansion in Latin America through acquisitions of smaller fiber businesses and organically building-out fiber infrastructure
Transaction Overview – Cinven, ADIA, and Enel to Own Ufinet International
In December 2021, Cinven and Enel SpA, agreed to a transaction whereby the Seventh Cinven Fund will own 80.5% of Ufinet International (Ufinet Latam SLU), while Enel SpA, via its wholly-owned subsidiary Enel X International Srl, will retain a 19.5% stake in the company. Given both firm’s prior ownership in Ufinet International, the transaction structure had multiple steps, as follows:
- Enel, which previously owned ~21% of Ufinet, exercises its call option to acquire the remaining ~79% of Ufinet’s share capital from Cinven’s Sixth Cinven Fund for consideration of €1.32bn
- Enel receives ~€140m through a distribution of available reserves from Ufinet
- Simultaneously, Enel sells 80.5% of Ufinet’s share capital to Cinven’s Seventh Cinven Fund for consideration of ~€1.24bn
- In turn, Enel retains a stake equal to 19.5% of Ufinet and maintains representation on the company’s boards of directors
Overall, Cinven continues to own the majority of Ufinet International by transferring the company from its Sixth to Seventh fund vehicle. At the same time, Enel retains a similar minority position of ~20% in Ufinet, which it had prior to this latest transaction. Finally, Cinven is bringing in a co-investor, the Abu Dhabi Investment Authority (ADIA), to Ufinet International’s ownership structure.
Co-Investor
Cinven’s Seventh Cinven Fund, per CADE, appears to be allocating/selling-down a 29% ownership interest in Ufinet International to the Abu Dhabi Investment Authority (ADIA). Specifically, ADIA is acquiring its stake in Ufinet through:
- Platinum Ivy B 2018 RSC Limited, which is a wholly-owned subsidiary of Platinum International Investments Holdings RSC Limited, whose ultimate beneficial owner is ADIA
Overall, Ufinet International’s equity ownership will result in the following holdings: Cinven (51.5% ownership), ADIA (29% ownership), and Enel SpA (19.5% ownership).
Valuation
Cinven and Enel’s €2.5bn enterprise valuation of Ufinet International represents an EV/EBITDA multiple of ~15.5x, based on the business generating ~€160m of EBITDA.
Debt Financing
Cinven has received debt financing commitments from a Credit Suisse-led consortium to fund a portion of the Ufinet International transaction. Additionally, Barclays, UBS, Natixis, Scotiabank, and Santander are part of the debt financing group.
Transaction Advisors – Cinven
Cinven’s financial advisor (M&A) was Natixis. Additionally, Cinven’s legal advisor was Freshfields.
