Vodacom Group, a South African wireless carrier, today announced that it has agreed to acquire a co-controlling interest in InfraCo’s fiber assets in South Africa which are currently owned by Community Investment Ventures Holdings (CIVH), including its subsidiaries Vumatel and Dark Fibre Africa (DFA).
Upon completion of the transaction, Vodacom will hold a 30% equity stake in a newly created subsidiary of CIVH, known as InfraCo, which will hold CIVH’s assets as well as fiber-to-the-home (FTTH) and select wholesale transmission assets which Vodacom will contribute into InfraCo. Specifically, Vodacom is acquiring this 30% equity interest through the payment of cash, contribution of its own fiber into InfraCo, and purchase of secondary shares from CIVH.
As a result of the transaction, CIVH will hold a 70% co-controlling interest in InfraCo. To this end, existing CIVH investors including Remgro Limited (57% owner of CIVH) and New GX Capital will remain invested in CIVH. Despite its only 30% equity interest, Vodacom will jointly control InfraCo alongside CIVH.
Finally, Vodacom also has a call option to acquire an additional 10% stake in InfraCo. In turn, Vodacom could increase its shareholding in InfraCo to 40%, at the same implied valuation. However, Vodacom’s purchase will not result in CIVH owning less than 50.01% of InfraCo’s shares.
Transaction Overview – Vodacom and CIVH (Vumatel and DFA) form InfraCo
Vodacom will pay the total $862m (13.2bn South African Rand) purchase price through a combination of cash, the contribution of its own fiber assets into InfraCo, and the purchase of secondary shares:
- Cash: $392m (6.0bn South African Rand) paid by Vodacom
- Fiber: $274m (4.2bn South African Rand) valuation for the contributed fiber assets, in return for new shares in InfraCo. Specifically, Vodacom’s fiber-to-the-home (FTTH), fiber-to-the-business (FTTB), and business-to-business transmission access fiber network infrastructure will be contributed to InfraCo
- Secondary Shares: $196m (3.0bn South African Rand) payment by Vodacom to acquire further secondary shares from CIVH. Thus, Vodacom will increase its shareholding to at least 30% in InfraCo
Regarding the ‘contribution’ of Vodacom’s fiber assets, this will occur in two separate transactions. Firstly, Vumatel will acquire Vodacom’s fiber-to-the-home (FTTH) assets. Secondly, Dark Fibre Africa (DFA) will acquire Vodacom’s fiber-to-the-business (FTTB) assets and metropolitan backhaul fiber, access, and core and transmission assets.
Overall, Vodacom’s purchase implies a valuation for 100% of InfraCo of $2.9bn (44.0bn South African Rand). Therefore, the Vodacom and CIVH InfraCo transaction implies an EBITDA multiple of 12.88x.
Transaction Rationale – Vodacom, CIVH (Vumatel and DFA)
Vodacom and CIVH are both scaling up and extending the reach of their fiber businesses in South Africa through this transaction. In-line with Vumatel and DFA’s business model, InfraCo will operate as an open access wholesale fiber network in South Africa. In turn, InfraCo will leverage the efficiencies of a shared cost model to accelerate incremental fiber deployments across the country.
At the same time, Vodacom is enhancing its fixed offerings for both consumers and businesses. Vodacom intends to deliver affordable high-speed broadband access to a broader population segment – including lower and middle-income users, smaller towns, and small- and medium-sized enterprises. Largely, Vodacom expects to enhance South Africa’s network quality and resilience, which consequently, will increase the country’s connectivity rate.
InfraCo Fiber Infrastructure – CIVH (Vumatel and DFA)
Below is an overview of Vumatel and Dark Fibre Africa (DFA) which Vodacom is investing into through its CIVH transaction.
Vumatel builds, owns, and operates fiber-to-the-home (FTTH) networks in South Africa, using an open access wholesale model. Presently, Vumatel’s fiber network spans over 19.3k miles (31.0k kilometers) and passes 1.2+ million homes across South Africa. The company installs its ‘last-mile’ fiber-to-the-home (FTTH) in residential suburbs of South Africa.
After Vumatel installs fiber, the company leases this infrastructure to internet service providers (ISPs), who then provide retail broadband internet services to end customers.
Dark Fibre Africa (DFA)
Dark Fibre Africa (DFA) builds, installs, and operates long-haul and metro dark fiber networks. Specifically, DFA’s dark fiber spans over 8.2k miles (13.2k kilometers) and connects to 37.0k locations across South Africa. Geographically, DFA owns fiber networks in Johannesburg, Cape Town, Durban, Midrand, Centurion, and Pretoria. In addition, DFA owns fiber in 25 smaller metros including East London, Polokwane, Tlokwe, Emalahleni, and George.
In terms of customers, the company leases dark fiber and provides managed fiber services to telecommunications operators, internet service providers (ISPs), and enterprises. Importantly, DFA typically secures long-term contracts with these customers providing for stable and secure revenues.