Macquarie Allegedly Mulls Sale or Merger of Broadband ISP KCOM

Australian investment group Macquarie has reportedly placed broadband ISP and full fibre network operator KCOM, which is the dominant operator in Hull and is also expanding further out into East Yorkshire and Lincolnshire in England, under strategic review. The move could potentially result in a sale or merger of the business.

In case anybody has forgotten. Macquarie Infrastructure (MIRA / MEIF 6 Fibre), following a fierce bidding war with the Universities Superannuation Scheme (USS), finalised their £627m acquisition of Hull and East Riding’s incumbent broadband operator KCOM in August 2019 (here).

NOTE: KCOM currently aims to expand their full fibre network to 350,000 premises, which would be up from their current level of 297,000 premises passed (Mar 2023). The operator is home to around 139,000 broadband customers.

At the time, KCOM had only just finished its £85mLightstream” project (here), which made their gigabit speed Fibre-to-the-Premises (FTTP) broadband network available to nearly all of their addressable network area (195,000 premises). But in 2020 they began a large £100m network expansion into more competitive areas (here), which was followed in 2022 by a second £100m fibre expansion and copper upgrade programme (here).

The latest development, according to the Telegraph (credits to Carl for spotting), is that Macquarie has allegedly appointed advisory-focused investment bank PJT Partners to conduct a strategic review of KCOM’s business. The speculation is that this move could potentially result in a sale or merger of the business with a rival operator, although such a proposition seems likely to be much more challenging this time around.

The original deal came at a time of low interest rates and easier access to funding, while the situation today is the opposite and the market (infrastructure level) is also much more competitive than in 2019. Not to mention that KCOM has since sold off some parts of its business (here) and is coming under pressure to grant rivals more access to run new fibre via their network (here). Suffice to say that KCOM may struggle to attract the same sort of money as they did five years ago.

On the other hand, growing network operators like CityFibre and nexfibre (Virgin Media O2) are currently looking to help boost their reach through consolidation and neither have any significant overbuild with KCOM. On top of that, KCOM delivered its first pre-tax profit in the year to the end of March 2023 (current earnings are said to be around £50m), which is something that a lot of alternative networks are still some distance from achieving.

In addition, the investment environment may soon start to improve once interest rates drop, although it will take time to move away from the current peaks. In any case, we probably won’t hear much more on this until later in the year, after the completion of the strategic review.

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