Mid Europa Partners , the private firm with several telecoms operations in Central and Eastern Europe (CEE), has merged two of its telecoms units - Slovenia - based triple - play provider Telemach Group and Serbian broadband and pay-TV provider Serbia Broadband (SBB) . The merger creates the leading multi-country pay-TV distribution platform in the Balkans. BMI believes the merger provides a strong platform for growth in the medium term through leveraging common language and cultural similarities to provide content across markets in the region , as well as benefitting from broadband subscription growth .
|Broadband Growth Spurt Makes Merger Timely|
|Broadband Subscription Forecasts, 2010-2017|
Mid Europa will raise EUR330mn (US$434.3mn) in senior debt from eight regional and international banks, which it will use to refinance existing debt and fund further acquisitions after merging its two units. The merged entity will serve a total of 1.7mn fixed-line, broadband, cable and satellite TV customers - as well as mobile users from MVNO operations. Despite the complexity of the refinancing deal for SBB - Telemach Group, lenders have been attracted to the solid growth story that has seen revenue growth of over 20% a year since 2007 according to Mid Europa Partners .
Maintaining revenue growth of 20% a year may not be viable over the medium term, but BMI believes the newly formed group has a bright outlook and is set to benefit from exposure to strong growth markets across the region. We forecast broadband subscriptions will increase rapidly over the duration of our five - year forecast to 2017, and expect pay-TV to experience strong growth both as a standalone service and as part of converged service bundles.
SBB- Telemach is well placed to benefit from this trend due to a number of factors. As the second and third largest wireline broadband provider by subscriptions in Serbia and Slovenia respectively , it has a strong base from which to expand. Further, BMI believes that the fact its infrastructure is primarily cable offers competitive advantage with the deployment of DOCSIS3.0 enabling cost-competitive high - speed broadband - allowing it to gain market share as Western European cable firms such as Virgin Media , Ziggo and Unitymedia have in recent years.
A further competitive advantage stems from the potential for cross-country pay-TV content in the Balkan markets. BMI believes there is great potential for content to be sold across multiple markets - providing SBB - Telemach with the scale to improve its cost structures and acquire more sought after content, and at the same time dramatically increasing the scale of its addressable market. The countries of the former Republic of Yugoslavia offer a regional market of more than 20mn inhabitants - a massive upgrade from single market service provision.
A final underpinning of our positive outlook for Telemach/SBB Group is the potential for a further acquisition of Pink International Company , in which SBB has held long-term interest (see our online service, October 15 2012, 'Pink TV Portal Strengthens Case For Content-Connectivity Tie-up') . This would give Telemach/SBB access to a large content portfolio offered by TV Pink , the Serbian commercial broadcaster, as well the Pinkonline portal. This content, which is highly popular in the region, as well as an OTT service - when combined with increased scale and the infrastructure advantage of DOCSIS3.0 cable means we expect Telemach/SBB Group to outperform in the Balkans and challenge incumbents in several markets.