It's a Hull of a thing: Private equity biz Macquarie to swallow KCOM

Gavel falls on £627m valuation – new owner may look to offload ailing divisions

Updated The battle for ownership of KCOM, the East Yorkshire-based broadband provider and slinger of clouds, has finally ended with private equity investor Macquarie on top.

The five-day auction closed on Friday with subsidiary firm Macquarie European Infrastructure Fund 6 SCSp (MEIF6) lodging an offer of 120.3 pence per share, taking the valuation to £627m.

KCOM directors, advised by Rothschild & Co, said the terms of the MEIF6 bid were "fair and reasonable" and recommended "unanimously that KCOM shareholders vote in favour".

The price is 66 per cent higher than the closing trade value of KCOM's shares of 72.5 pence each when the company first attracted interest some months back.

Humber Bidco, a subsidiary of the UK's largest hedge fund, the Universities Superannuation Scheme Ltd (USSL), made the initial approach to KCOM with an offer of 97 pence per share on 24 April, which valued the company at £504m.

The tale took another turn in early June when Macquarie showed its hand, throwing in a rival offer of 108 pence per share, taking the total to £563m.

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However, in the absence of either suitor declaring their offer final, management at KCOM organised a sales auction to flush out the one that was willing to dig deeper with something more definitive.

The toing and froing didn't heat up until Friday, 12 July, when USSL went to 113 pence per share, before being trumped by Macquarie, which already has business interests in the locale including Race Bank Offshore Wind Farm off the coast of Grimsby.

So what does Macquarie get for its investment? In fiscal '18, KCOM reported revenue of £301.89m, versus £331.3m in the prior financial year.

The unit that sells broadband to 140,000 businesses and consumers in Hull and East Yorkshire hauled in £104.2m, up 1.9 per cent. This part of the business also sells mobility services, and wholesale services to other broadband providers.

Enterprise – consulting, design, contact centre-as-a-service, managed, cloud and support services – dipped 2.5 per cent to £88.28m. Customers include HMRC, Bupa and Jaguar Land Rover and Rail Delivery Group.

However, it was the legacy SME National Network Services – connectivity services such as WAN, call management services and provision of the Health and Social Care Network – where the pain was felt most as revenue crashed by 20 per cent to £113.2m.

Profit for the year was £36.4m versus £32.75m.

As Megabuyte pointed out this morning, Hull and East Yorkshire is by far the most profitable area of KCOM, and with this in mind, Macquarie will seek to further develop the fibre portfolio to "include greater third party ISP access", and likely review the Enterprise and Network Services area with an option to sell them.

Updated on 16 July to add:

KCOM shareholders will get a chance to vote on the proposed buy on 26 July. ®

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