KKR, a private equity firm, investing through its core infrastructure strategy and entity Rudolph Bidco Sàrl, today announced an agreement with Red Eléctrica Corporación, an electric utility company in Spain, to acquire a 49% stake in its wholly-owned subsidiary Red Eléctrica Infraestructuras de Telecomunicación SAU (Reintel), a dark fiber operator in Spain.

KKR is acquiring its 49% stake in Reintel for a total of €971m, implying an enterprise value for 100% of the company of €2.3bn. Reintel expects to generate an estimated €104m of EBITDA in 2021, representing a valuation of 22.1x EV/2021E EBITDA.

Post-transaction, Red Eléctrica will continue to be the controlling shareholder of Reintel and will consolidate the business into its financial statements. Finally, the transaction is expected to close in Q2 2022.

Reintel – Red Eléctrica – Overview

Reintel is a dark fiber operator with a network spanning 32.5k miles (52.3k kilometers) across Spain. Specifically, Reintel’s dark fiber is deployed on Red Eléctrica de España’s electricity transmission network as well as the rail network of ADIF AV, Spain’s state-owned railway manager.

Long-Haul (Inter-City) Network

Reintel’s backbone network is a long-haul (inter-city) network which comprises 31.5k miles (50.7k kilometers). This long-haul network connects Spain’s main cities in 50 provinces nationwide, including Madrid, Barcelona, Valencia, Alicante, and Sevilla.

Long-Haul Inter-City Fiber Network Reintel

Beyond Spain, Reintel’s long-haul network also has international interconnection links with France, Portugal, Morocco, and Andorra.

Metro (Intra-City) Network

Reintel’s dedicated cable solution is a metro (intra-city) network which comprises 1.0k miles (1.6k kilometers). This metro network provides capillarity within major cities of Spain, using dedicated cable and metropolitan fiber rings. Particularly, Reintel installs its metropolitan fiber rings along the commuter railway lines.

Metro Intra-City Fiber Network Reintel

Housing Sites

Reintel offers colocation facilities (i.e., carrier hotels) and telecommunications shelters at 1.2k sites along its dark fiber network. Of this total, 585 sites are located on the electricity grid and 644 are situated on the railway network.

Housing Sites Colocation Telecommunications Shelters Reintel

Below are further details on each of Reintel’s different housing sites:

  • Colocation (Carrier Hotels): located in population centers, these facilities offer space and power, acting as points of interconnection
  • Telecommunications Shelters: customers are able to install their own equipment at these sites, which are located next to electricity substations and high-voltage towers. The primary function of these sites is to facilitate signal regeneration

Customers

Reintel offers wholesale dark fiber services to its customers, which include telecommunications operators and utilities in Spain. Typically, Reintel offers its dark fiber network on indefeasible right of use (IRU) agreements or long-term leases.

KKR Backs Red Eléctrica’s Reintel in Fiber Expansion

Red Eléctrica’s Reintel will deploy the capital it is receiving from KKR in support of future growth opportunities in Spain, such as the roll-out of 5G networks.

Deployment

When Reintel deploys new fiber infrastructure, it can offer points of connection and deploy new ducting installation along the routes of Red Eléctrica’s high-voltage electrical lines and most of ADIF’s railway network.

However, Reintel’s network boundaries are physically limited to the electricity grid and the railway network. Therefore, the company provides its customers with a junction box or fiber segregation point such that, from those points of connection, customers can design their own network to meet their needs and specifications.

Competitors

Reintel’s key competitors in Spain include fiber providers Lyntia, Aire Networks, RENTELECOM, Iberfibra, and AXENT.

Transaction Rationale – Red Eléctrica

Red Eléctrica Corporación’s disposal of a 49% stake in Reintel follows a four-month sale process which attracted interest from several infrastructure funds who reportedly included Allianz, AXA IM, PGGM, Queensland Investment Corporation (QIC), and Vauban Infrastructure.

Overall, Red Eléctrica estimates that the sale of the Reintel minority stake will produce a pre-tax capital gain of ~€900m. As such, the company will record a gain in its Consolidated Financial Statements as Reserves within equity.

Additionally, Red Eléctrica’s sale of a 49% stake in Reintel aligns with the company’s 2021-2025 Strategic Plan. Specifically, the company is gaining:

  • Investment from a partner into a strategic asset to enable growth opportunities
  • Financial capacity within its overall telecommunications businesses
  • Valuation confirmation on the worth of its latent dark fiber infrastructure

Diversified Core Infrastructure Fund – KKR

KKR’s core infrastructure strategy is backed by the firm’s Diversified Core Infrastructure Fund.

KKR’s $6.8bn Diversified Core Infrastructure Fund began its investment period in December 2020 and the firm will be able to continue investing out of this vehicle indefinitely, as it is an open-ended fund. Particularly, this fund focuses on investing in high-quality assets in developed OECD countries (e.g., Spain).

Given the open-ended term of KKR’s Diversified Core Infrastructure Fund, the firm will be able to provide long-term support for Reintel’s fiber network growth in Spain.

Transaction Advisors – Red Eléctrica

Red Eléctrica’s financial advisors were UBS and Barclays. Additionally, Red Eléctrica’s legal advisor was Garrigues.

Jonathan Kim covers Fiber for Dgtl Infra, including Zayo Group (private), Cogent Communications (NASDAQ: CCOI), Uniti Group (NASDAQ: UNIT), and Lumen Technologies (NYSE: LUMN). Within Fiber, Jonathan focuses on the sub-sectors of wholesale / dark fiber, enterprise fiber, fiber-to-the-home (FTTH), and subsea cables.

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