Proximus today announced it has reached an agreement with MTN and Swisscom, the two minority shareholders of BICS, to acquire their respective stakes of 20.0% and 22.4% in BICS (including TeleSign), an international wholesale transit provider, for €217m. Overall, Proximus’ purchase price for BICS implies a whole-company valuation of €512m, and an enterprise value of €569m. Based on BICS’ EBITDA of €131m for 2020, this equates to a multiple of 4.3x EBITDA. Additionally, BICS’ free cash flow of €64m, implies a free cash flow yield of 11.2% on enterprise value.
In July 2020, Proximus announced that the shareholders of BICS (Belgacom International Carrier Services) were exploring a potential sale of 51% of the company’s shares. After exploring strategic alternatives, Proximus concluded that it will acquire 100% of BICS, which also owns TeleSign.
Proximus will finance the BICS transaction through its existing €700m of credit facilities. For the overall transaction, Perella Weinberg Partners is acting as financial advisor and Linklaters as legal advisor to Proximus.
BICS (excluding TeleSign) – Overview
BICS is a key international wholesale transit provider for voice and mobile data services, with other telecom operators (or carriers) being its customers. Specifically, BICS provides solutions for voice, messaging, roaming, connectivity, cloud communication, and Internet of Things (IoT) to hundreds of telecom operators around the world. Indeed, the company is a leading carrier of mobile traffic, to and from, Europe, Africa, and the Middle East.
BICS has built its global network, with direct connections to 200+ countries, on the back of numerous digital infrastructure providers. BICS operates a 100 gigabit per second capacity optical network, covering all major data centers and internet exchanges in Europe.
Overall, BICS’ network includes 120 points-of-presence (PoPs) in many of the most interconnected data centers globally. Additionally, the company participates in 25+ subsea cables, comprising 205k route miles, with 200 landing points. Specifically, these subsea cables include EIG, SEA-ME-WE 3, SEA-ME-WE 4, SAT-3/WACS, and SAFE.
Business Characteristics – Wholesale Transit
BICS’ wholesale transit business is characterized by high volumes, low margins, and is highly volatile. Indeed, commercial contracts are often only six months in duration, which frequently results in financial volatility, at the time of renewal.
Notably, the wholesale transit business requires low maintenance capital expenditures given that capacity is often leased through hundreds of bilateral agreements with other telecom operators. Indeed, BICS and TeleSign spent only €44m in capital expenditures during 2020. Therefore, this implies a capital intensity ratio of less than 4% on the aggregate company’s revenue of €1.2bn for 2020.
Business Performance – Wholesale Transit
BICS has been financially underperforming over the past years, impairing its valuation for Proximus. The sub-segment’s revenue was €921m (77% of total BICS) in 2020, declining 18% year-over-year. Additionally, BICS’ EBITDA was €101m (11% margin) in 2020, declining 20% year-over-year. Specifically, this financial underperformance is due to i) fundamental aspects of the wholesale transit business and ii) COVID-19 impacts on the business.
Firstly, the effective price per megabit for wholesale transit customers is declining as the bandwidth utilization and connection size of wholesale transit customer connections increases. Indeed, competition and additional capacity from other wholesale transit providers results in intense price pressure. However, this is somewhat offset by volume growth from increases in mobile phone users and internet usage, both on a mobile and fixed line basis.
Secondly, worldwide travel restrictions during the COVID-19 pandemic have had negative impacts on roaming traffic. Indeed, BICS anticipates data roaming to return to its pre-COVID-19 growth trajectory of a 16% CAGR from 2019 to 2024. In turn, increases in data roaming will help to offset pricing pressure.
TeleSign – Proximus Acquires Company
As part of today’s deal, Proximus also acquires TeleSign, a fast-growing, but relatively small sub-segment of BICS. Specifically, TeleSign is a business-to-business provider of online protection and customer identity verification & authentication solutions.
TeleSign’s customers include leading internet companies such as Affirm, Alibaba Group, TransUnion, ByteDance (owner of TikTok), Upwork, and NTT.
The company’s revenue was €273m (23% of BICS segment) in 2020, growing 57% year-over-year. Additionally, TeleSign’s EBITDA was €30m (11% margin) in 2020, growing 11% year-over-year. Given TeleSign’s significant growth rates, the company may comprise a relatively larger proportion of the valuation that Proximus ascribes to BICS.