KKR, a private equity firm, today announced it has entered into an agreement with Telefónica, a global wireless carrier, to acquire a 60% stake in Telefónica Chile’s existing fiber optic network, the largest fiber optic network in Chile, at a valuation of $1bn U.S. dollars. Indeed, this unit, known as InfraCo, generates $54.3m of EBITDA, implying a multiple of 18.4x EBITDA for the business. Overall, KKR and Telefónica will make this network Chile’s first open access wholesale fiber optics company.
The fiber optics company will have the mission to bring greater broadband access across Chile. To do this, KKR and Telefónica will form a newly established independent Chilean company with assets managed locally. Telefónica will hold the remaining 40% stake in the business, with the transaction closing in the first half of 2021.
Open Access Wholesale Fiber Network in Chile – Telefónica and KKR
The newly formed enterprise will serve as Chile’s first wholesale digital infrastructure network open to all current and future telecom operators in Chile. Specifically, Chile’s four largest wireless carriers, Entel, Movistar (Telefónica), Claro (América Móvil), and WOM (formerly Nextel Chile, with new owners being UK private equity firm Novator Partners) will be able to use the network. In turn, this open access wholesale fiber network will induce competition, which will benefit consumers and businesses across the country.
Despite Chile having the highest GDP per capita in Latin America, at $23.9k U.S. dollars (PPP), it currently ranks third in fiber-to-the-home penetration. Indeed, fiber optic service offers high-reliability and speeds 10x to 1,000x faster than cable and legacy copper networks.
Fiber Network Business Plan – Telefónica and KKR
Telefónica and KKR’s business plan envisions expanding fiber coverage in Chile by deploying further fiber optic infrastructure in the country. Firstly, the effort plans to expand broadband coverage from 2 million households currently, to 3.5+ million households by 2023. Secondly, the company will provide wholesale service to more than 40k businesses, cellular towers, and small cells.
Importantly, the newly formed network will provide access to under-served areas. Indeed, the network plans to cover more than two-thirds of households from areas outside of high-income urban areas.
Fiber Infrastructure Market in Chile
Telefónica Chile notes that it has seen increased commercial activity for its domestic fiber over the last 12 months. Indeed, this is a notion echoed by DigitalBridge, which sells fiber capacity, through portfolio company Andean Tower Partners, on a wholesale basis to major wireless carriers in Chile. Moreover, DigitalBridge notes that Andean Tower Partners’ small cells also had strong leasing performance during 2020.
Telefónica and KKR – Digital Infrastructure Partners
KKR is making the investment into this fiber network with Telefónica Chile, through its Global Infrastructure Investors III Fund. Indeed, Telefónica and KKR have worked together in the digital infrastructure sector previously. Specifically, KKR purchased a 40% stake in Telxius from Telefónica in February 2017, which ultimately sold its tower segment to American Tower in January 2021.
Overall, KKR has broad global experience in digital infrastructure, including investments in FiberCop in Italy, Hyperoptic in the UK, Deutsche Glasfaser in Germany, Telxius in Europe & Latin America, Hivory in France, Global Technical Realty in Europe, Bharti Infratel in India, and Pinnacle Towers in the Philippines.
Fiber – Precedent M&A Transactions
Investors have been increasing their focus on Latin America fiber infrastructure as a source of deal activity at reasonable valuations. Indeed, another sizable fiber-to-the-home transaction was consummated in Brazil, only months prior to today’s announcement.
Specifically, in November 2020, Bordeaux Investment Fund, backed by Nelson Tanure, acquired Copel Telecom from COPEL, a Brazilian utility company. In terms of valuation, Copel Telecom was sold for $448m U.S. dollars, equating to a multiple of 12.0x EBITDA. For further comparable transactions, check out our comprehensive list of fiber precedent M&A transactions here.