MasMovil joins Spain's big league with Yoigo takeover

Thursday 30 June 2016 | 15:50 CET | Background

The newly formed fourth mobile network operator in Spain, combining MasMovil and Yoigo, is set to take around 8 percent of the total mobile market, according to the latest figures from Telecompaper. While MasMovil will remain the smallest player in the mobile market, its spectacular growth path through a string of acquisitions suggests it is ready to try where Telia failed and take on the big players. The company will now need to prove it can grow also organically and win over customers. 

Masmovil outbid UK-based investment company Zegona to secure Yoigo, buying both the 76.6 percent majority stake owned by Telia as well as the remaining shares from local minority shareholders. The agreed price of EUR 612 million will be 60 percent funded by debt and 40 percent equity. The price implies an enterprise value of around 5.3x annual EBITDA (post direct cost savings without synergies). 

Masmovil expects to generate cost savings of more than EUR 60 million by 2019, while integration costs are estimated at EUR 50 million over two years. An additional earn-out of up to EUR 96 million will be paid in 2020 if the company reaches EUR 300 million in EBITDA in 2019 (no payment due under EUR 210 million EBITDA). The deal is subject to approval from the Spanish competition authority, and the transaction is expected to close before the end of 2016.

Masmovil has transformed from MVNO to an integrated telco through a targeted merger and acquisitions strategy. It has already acquired and successfully integrated 10 companies in the last 24 months. It also has been building its own LTE network in several cities and acquired fixed broadband assets from Orange. It most recent acquisition was MVNO Pepephone in April, which is also expected to be approved in the second half of 2016. With this merger it creates a company with more than EUR 200 million in annual revenue and more than double Masmovil's previous EBITDA. The acquisition of Yoigo will result in another three-fold increase in its annual revenue.

The latest acquisitions will increase MasMovil’s mobile customer base to around 4.2 million, consisting of 0.5 million of its own SIMs, 0.4 million from Pepephone and 3.3 million at Yoigo. It will have a combined national mobile coverage of 85 percent of the Spanish population. Based on an estimated total of 51.8 million mobile SIMs in Spain at the end of Q1 2016, MasMovil will have around 8 percent of mobile customers, according to the latest figures from Telecompaper.

It also has around 70,000 fixed customers and fixed network coverage (FTTH and xDSL) of 80 percent of Spain. This is based on 750,000 FTTH building units in five major cities such as Madrid and Barcelona and access to Jazztel’s national xDSL network. The company has plans to enlarge its FTTH footprint to reach 2.3 million buildings in three years. It will focus on low population density areas where competition is less intense and sign co-investment agreements to minimize capex requirements.

Masmovil still faces a big uphill battle. Consolidation in Spain following the economic recession has seen the formation of three fixed and mobile giants: the incumbent operator Telefonica, Vodafone Spain after its Ono buy, and Orange Spain, which also owns fixed operator Jazztel. These three players had 93.5 percent of the total mobile service revenue in Q1, which we estimate totalled EUR 2.4 billion. The mobile market showed a continued recovery in Q1, with service revenue down only 0.6 percent year-on-year.

Nevertheless, Yoigo was only able to increase its sales by 3.3 percent annually and had just a 6.5 percent share of mobile service revenue in Q1 2016. In terms of mobile customers it showed the largest drop (-4.8%) of all MNOs and its market share fell to 6.4 percent of the total Spanish market. The operator has struggled from its inability to offer converged services, as the big operators win over customers with discounted bundles of fixed, mobile and TV services.

Masmovil will be able to change this, bringing its own infrastructure, wholesale deals and sales and marketing team. Last month Masmovil launched a low-cost fibre broadband plus mobile convergent offer in a bid to compete with the other MNOs. All of MasMovil’s convergent packages come with unlimited mobile calls and are up to 40 percent cheaper than rival offers. The question remains whether MasMovil, after an exponential rise from just a tiny MVNO a few years ago, will be able to build on Yoigo and its acquired assets and start growing organically.

The above figures are based on Telecompaper’s database on the Spanish mobile market, which is available for purchase. For more information, click here.

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