Vocus Group (ASX: VOC) today announced that it has accepted a non-binding, indicative proposal from Macquarie Infrastructure and Real Assets (MIRA) to acquire 100% of the shares of Vocus, via a scheme of arrangement, at a price of $5.50 per share, equivalent to $3.4bn Australian dollars ($2.6bn USD). Therefore, including net debt, the enterprise value rises to ~$4.3bn Australian dollars, which equates to 10.8x Vocus Group’s forward EBITDA of $395m Australian dollars.
Vocus Group is a telecommunications services provider, to enterprise and retail customers, operating across Australia and New Zealand.
Indicative Proposal for Vocus Group from Macquarie
Vocus Group’s board of directors notes that the Macquarie Infrastructure and Real Assets (MIRA) proposal is subject to conditions. Specifically, these include:
- Satisfactory completion of due diligence by Macquarie Infrastructure and Real Assets (MIRA)
- Macquarie Infrastructure and Real Assets (MIRA) securing debt financing
- Unanimous recommendation by the Vocus Group board of directors
- Entry into a mutually acceptable scheme implementation agreement
Vocus Group’s board of directors has concluded that it is in the best interests of its shareholders to explore the potential for a transaction with Macquarie Infrastructure and Real Assets (MIRA). Therefore, Macquarie has been granted due diligence access to enable it to make a binding proposal. As part of the process, Vocus Group appointed Credit Suisse as its financial advisor and Allens as its legal advisor.
Digital Infrastructure – Vocus Group
Vocus Group generates the majority of its earnings from serving enterprise customers with its portfolio of digital infrastructure assets. Specifically, this digital infrastructure includes fiber, subsea cables, and data centers. Indeed, the proposal from Macquarie Infrastructure and Real Assets (MIRA) to acquire Vocus Group seeks to unlock additional value from the company’s extensive digital infrastructure assets.
Fiber – Digital Infrastructure
Vocus Group owns a terrestrial fiber network comprising 18.6k route miles. Of this total, 16.0k fiber route miles are in Australia and 2.6k route miles are in New Zealand. The company’s terrestrial fiber network has backhaul capabilities to most regional centers in Australia and New Zealand.
Subsea Cables – Digital Infrastructure
The company owns the Australia Singapore Cable (ASC), which is a 2.9k route mile subsea cable connecting Singapore, Indonesia, and Australia. Furthermore, Vocus Group has 1.3k route miles of subsea cables between Port Hedland and Darwin. Overall, the company’s subsea cables connect all mainland capitals in Australia, with key cities across Asia.
Data Centers – Digital Infrastructure
Vocus Group owns 13 colocation data center facilities across Australia and New Zealand. Specifically, the company has seven data centers in Perth (Australia), three data centers in Melbourne (Australia), 2 data centers in Sydney (Australia), and one data center in Auckland (New Zealand). In total, Vocus Group has more than 65 points-of-presence (PoPs) in over 100 data centers, across Australia.
Enterprise, Government and Wholesale (Vocus Network Services) – Segment
Vocus Group’s Enterprise, Government and Wholesale business segments contribute 61% of the company’s EBITDA. However, given the extent of the company’s digital infrastructure assets, Vocus Group should pose a larger competitive threat to Telstra, which has an enterprise market share of ~75%.
Indeed, Vocus Group’s Enterprise segment has traditionally been strong in Western Australia and is now further expanding nationwide. Similarly, the company is expanding its Government segment by targeting state governments in parts of the country, outside of Western Australia.
In Wholesale, Vocus Group is signing up additional customers on the Australia Singapore Cable (ASC), as demand from growing data needs in Asia increases. Specifically, the Australia Singapore Cable (ASC) is a key digital infrastructure entry point into Australia, to then connect into Vocus Group’s terrestrial fiber services. International customers use the company’s transit services across Australia, to reach various hyperscale data centers.
Fixed Broadband (Retail) – Segment
Vocus Group’s Fixed Broadband business segment contributes 22% of the company’s EBITDA. The company uses its extensive network to provide fixed broadband services across Australia. Indeed, the company is the fourth largest fixed broadband provider in Australia, with a ~6% market share, behind Telstra, Optus, and TPG Telecom.
Notably, Australia’s fixed broadband market is one of the more attractive markets globally, because it is one of only a small number of countries, which have metered billing for data use. Therefore, as broadband data rates increase, driven by secular trends, such as increases in video streaming, the average revenue per user (ARPU) for fixed broadband providers, will grow steadily.
Additionally, Australia’s National Broadband Network (NBN) is increasing broadband penetration. Indeed, particular benefits are accruing to existing providers like Vocus Group, which have low market share, compared to incumbents like Telstra and Optus.
National Broadband Network (NBN)
The National Broadband Network (NBN) is an Australian state-owned enterprise which is creating a national wholesale open-access broadband network. The initial intention of the National Broadband Network (NBN) was to decommission legacy copper and hybrid fiber-coaxial (HFC) networks. Indeed, this legacy infrastructure would be transitioned to entirely fiber-based infrastructure.
At various points in time, the National Broadband Network (NBN) has used different fiber-based technologies to deploy this broadband network. Indeed, these fiber technologies include fiber-to-the-curb (FTTC), fiber-to-the-node (FTTN), and fiber-to-the-premises (FTTP).
Overall, the National Broadband Network (NBN) is facilitating increased broadband competition in Australia. This is because incremental broadband customers can be served by the National Broadband Network (NBN), by paying wholesale access fees, based on data usage. Indeed, existing broadband providers like Vocus Group, which have low market share, are particular beneficiaries of this program.
Macquarie Infrastructure and Real Assets (MIRA) – Beyond Vocus Group
Macquarie Infrastructure and Real Assets (MIRA) manages investments in over 150 businesses and 500 properties, across 31 countries. Specifically, the group invests in infrastructure, renewables, real estate, agriculture, insurance services, and private credit. Macquarie Infrastructure and Real Assets (MIRA) has $91bn of equity under management and $132bn of assets under management.
Overall, Macquarie Infrastructure and Real Assets (MIRA) is a key investor in digital infrastructure. Moreover, the company has significant digital infrastructure holdings in both Australia and New Zealand. For example, in April 2020, Macquarie acquired an 88% stake in AirTrunk from Goldman Sachs and Sixth Street Partners (TPG). In terms of valuation, the purchase was for $3.0bn Australian dollars ($2.1bn USD), equating to a 31x EBITDA multiple.