Providence Equity has agreed to acquire a 63 percent stake in pan-Baltic cable TV and broadband provider Starman Group, from East Capital Explorer AB (NASDAQ Stockholm: ECEX). The deal is valued at €210 million ($232.6 million).
The transaction, which will result in an exit gain for ECEX of at least €35m, corresponding to a gross IRR in excess of 30 percent, will consist of an upfront cash consideration of approximately €81m with the potential for an additional earn-out of up to €5m payable in 2017.
East Capital Explorer acquired a majority stake in the Estonian operator Starman in 2013. Since then, Starman’s revenues and EBITDA have grown by an average of 11 percent per year. In February 2015, East Capital Explorer made an add-on investment in Starman which enabled Starman to acquire its Lithuanian peer Cgates, thereby creating the first pan-Baltic cable TV and broadband provider. The two equity investments amounted to a total of €46m.
“This transaction will crystallize significant value for our shareholders, and prove our past three years’ strategic focus on investments in private equity and real estate in the Baltic countries,” said Mia Jurke, CEO of East Capital Explorer. “We welcome the financial flexibility that this transaction will give us. We believe that our strategic investment focus and a continued use of available tools such as buybacks, dividends and share redemptions, can altogether increase shareholder value.”
“I am pleased to announce this, which will be one of the largest private equity transactions in the Baltics to date,” said Kestutis Sasnauskas, head of private equity and real estate at East Capital. “We have strengthened investments in technology, product development and market consolidation, and worked closely together with the management team. This has enabled Starman to outgrow its competitors and transform from a national challenger into a regional leader. We are confident that Providence will enable Starman to continue to develop successfully in this exciting and fast evolving market.”
“We are confident that with the addition of a strong financial investor, with over 25 years of experience of telecom investments, as our new majority owner, we can continue on the path of innovation and growth in the Baltic region,” said Aivo Adamson, CEO of Starman Group.
“The acquisition of Starman Group would represent Providence’s continued commitment to investing in infrastructure to support the delivery of high quality media and communication services in the Baltic region,” said Karim Tabet, managing director at Providence.
The transaction will provide East Capital Explorer with an annualized return (IRR), net of all fees, of 24 to 27 percent, says the company. The exit gain will result in a carried interest of approximately €6.5m, equal to 20 percent of the net exit gain based on the upfront consideration, according to the investment agreement between East Capital and ECEX. The amount will be treated as a liability in ECEX’s balance sheet as of Q1 2016. Payment of the carried interest will be subject to a number of conditions. The net positive effect on ECEX’ NAV will be approximately €3m, over the recorded fair value of Starman of €72m.
The minority shareholders in Starman will be offered to sell their shares to Providence on the same terms and conditions offered to ECEX. The transaction will be subject to local competition and regulatory approval as well as minority shareholders not exercising their pre-emptive rights, and is expected to close during Q2 2016.
Starman is the leading TV and internet provider in the Baltics. Founded in 1992, Starman has been a technology pioneer and innovator in the Estonian telecommunication sector, developing the first broadband services, most advanced digital TV services and unique TV Everywhere solutions. In 2015, Starman expanded its reach to Lithuania through the acquisition of Cgates. The group offers cable TV, broadband, DTT and fixed-telephony services with over 500 thousand RGUs across Estonia and Lithuania. Starman has approximately 500 employees and is headquartered in Tallinn, Estonia.
East Capital Explorer AB is a Swedish investment company with a net asset value of €254m, created with the aim of bringing unique investment opportunities in Eastern Europe to a broader investor base. The company makes direct investments into primarily private companies and real estate, but has also invested through East Capital’s alternative investment funds. East Capital Explorer’s main investment theme is domestic growth and the Company targets fast growing sectors such as retail, telecom and real estate. East Capital Explorer is listed on Nasdaq Stockholm, Mid Cap.
Providence Equity is a premier, global asset management firm with $45 billion in assets under management across complementary private equity and credit businesses. Providence pioneered a sector-focused approach to private equity investing with the vision that a dedicated team of industry experts could build exceptional companies of enduring value. Providence has invested in more than 150 companies and is the leading equity investment firm focused on the media, communications, education and information industries. Providence is headquartered in Providence, R.I. and also has offices in New York, London, Hong Kong, Singapore and New Delhi. Providence was founded in 1989 by billionaire Jonathan M. Nelson, the firm’s CEO.