In Ulysses, James Joyce compressed his musings on life, the universe and everything into a single day in Dublin. Eircom has similarly packed an awful lot into its short history as a privatised entity.
On Tuesday, it agreed to its second leveraged buy-out in the space of five years. Babcock & Brown Capital, a listed Australian investment fund, alongside Eircom’s employee trust, will become the Irish telecommunications operator’s fifth owner since 1999. Of the previous sets of owners, though, only those investors who bought in at the original initial public offering at the height of the technology bubble have done badly. The government, the previous private equity consortium, and the public shareholders now selling to B&B have all done well.
Can B&B repeat that success? It points to Eircom’s innate strengths. Eircom has been remarkably adept at managing the regulatory threat to its incumbent position in the Irish fixed-line market. That, combined with Ireland’s high growth economy and young demographic, should limit the competitive threat to the core business. Eircom’s re-entry into mobile last year has gone well and, together with woefully low broadband penetration, provides growth.
That combination of a secure base business and growth opportunities is relatively rare in the telecoms sector and helps explain the premium multiple of 7.6 times ebitda B&B is paying. On the other hand, expansion means capital expenditure will probably rise. Eircom’s history suggests further efficiencies will be difficult to come by.
That suggests the real opportunity for a financial investor is, at some point, to split the business. A separate, securitised fixed-line network would generate low-risk returns over the long term. That would allow B&B potentially to de-gear and sell on the retail operations. Regulators should also welcome this. Eircom’s odyssey of ownership looks set to continue.