Private equity-owned Mach, a Danish telecommunications clearing and billing services company, has been bought by another private equity firm, Warburg Pincus LLC (WBP.XX), for just above EUR600 million, people familiar with the situation said Monday.
Mach said Monday that its owners, Advent International Corp. (AVT.XX) and Providence Equity Partners Inc., had sold the company to private equity house Warburg Pincus for an undisclosed sum. Spokespeople for the three private equity firms declined to comment on the deal.
Advent International and Provident paid about EUR100 million for Mach in November 2002, people familiar with the matter said, generating a rough return of about six times the two firms' original investment. The equity portion of the EUR100 million investment Advent and Provident made was about EUR56 million, the rest being debt, according to one person familiar with the deal.
Advent has a stake of about 60% in Mach, while Providence has about 40%, the person said.
Headquartered in Luxembourg and in Copenhagen, Denmark, Mach provides invoicing, financial settlement, and debt collection services to the telecom industry.
These are services which national telecom operators are outsourcing because some telecom operators see billing as a non-core service, said Peter Siggins, a Washington, D.C.-based management consultant for PA Consulting's telecoms team.
Also, "if telecom companies outsource billing to a provider serving multiple telecoms companies, then they get economies of scale and they don't have to build their own system," Siggins said.
Another reason for the growth in outsourcing is the increasing complexity of correctly calculating and collecting revenues for roaming, which is when mobile phone customers travel abroad and continue to use their mobile phones without an interruption in service.
Collecting roaming revenues means telecom operators have to deal with multiple other service providers, a time-consuming and costly task: indeed, inter-operator business amounts to between about 20% and 30% of a telecom operator's total revenue on average, Mach estimates.
In addition to billing, Mach also provides other value-added services, such as fraud protection. It has about 400 employees and has regional offices in the U.K., Germany, Singapore, the United Arab Emirates, India, the U.S., and Brazil.
In a statement, Jeremy Young, Managing Director at Warburg Pincus, said the private equity firm will draw upon its experience in the telecoms, outsourcing, and transaction processing businesses to help grow and develop Mach.
Communications is a key sector for Warburg Pincus: it has invested more than $1 billion in 27 communications companies worldwide. Within the communications field, Warburg Pincus targets fast-growing companies that provide provide infrastructure systems, sophisticated software and inter-carrier communications services, for example. One example of a communications company backed by Warburg Pincus is Washington, D.C.-based NeuStar, which provides clearinghouse or exchange services to North American telecom providers.
The Mach sale had attracted preliminary interest from several other private equity firms, including Apax and Permira, Dow Jones Newswires reported earlier.
Since buying Mach in 2002, Advent International and Providence brought in a new management team and upgraded the company's systems. The two financial sponsors then bought another telecom billing services company a direct competitor to Mach, Dan Net A/S, from Denmark telecom operator TDC AS (TLD) for EUR160 million in July 2004, integrating the company with Mach.
Warburg Pincus was advised by UBS AG, while law firm Freshfields provided legal advice and PriceWaterhouseCoopers provided accounting and other financial advice. Advent and Providence were advised by Goldman Sachs International, while law firm Lovells provided legal advice and KPMG accounting and financial advice.
Warburg Pincus has invested more than $18 billion in about 490 companies in 30 countries. Besides communications, the firm invests in health-care and life sciences, energy, financial services, media, and business technology and services. The firm has offices in New York, London, Hong Kong, Tokyo, Seoul, Beijing, and Mumbai, India.
In addition to communications, Advent International targets fast-growing companies in a variety of other sectors, such as business services, chemicals, electronics and industrial technology, energy, financial services, healthcare and life sciences, information technology, media, and retail. The firm invests in both Western Europe and Central Europe, as well as in North America, Latin America, and Asia Pacific. It has invested in Europe since 1990, investing in more than 120 European companies with a combined enterprise value of over EUR10 billion. Advent's portfolio of investments include includes a 65% stake in Bulgaria's fixed-line telecoms operator, the Bulgarian Telecommunications Company or BTC, acquired in June 2004.
Providence, R.I.-based Providence Equity Partners Inc. invests in communications and media companies around the world, including wireless telephony, cable television content and distribution, publishing, and radio and television broadcasting. Providence Equity manages funds with over $9 billion in equity commitments, including Providence Equity Partners V, a $4.25 billion private equity fund. Providence Equity also has offices in London, and New York.
Providence Equity is the largest individual shareholder in Retos Cartera, the consortium that led the management buy-out of Spanish media group Recoletos in April 2005.
