The Rural Broadband EIS Fund 121108
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The Rural Broadband EIS Fund 121108

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Broadway Partners with Enterprise PE have launched the Rural Broadband EIS Fund as a tax efficient way to invest in the delivery of superfast broadband projects in the UK

Broadway Partners with Enterprise PE have launched the Rural Broadband EIS Fund as a tax efficient way to invest in the delivery of superfast broadband projects in the UK

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  • 1. The Rural Broadband EIS Fund Sponsored by Enterprise Private Equity Limited
  • 2. Highlights• A new area for EIS investment• Substantial unsatisfied demand• Limited competition• Experienced management team• Fund strategy focus on – maximising returns – minimising risks, and – facilitating exit• Indicated Fund IRR of 21% net over four years
  • 3. Why rural broadband? A great unexplored opportunity! 80% 74% Big Demand Rural households depend more on broadband than urban areas & more readily buy it when it’s available
  • 4. Applications are exploding Centred on the family Cisco predicts a 5-fold increase in Internet traffic over the next 3-years
  • 5. Why rural broadband? BT Concentrating their investment to reach the ‘first 70%’ of premises, where the competitive threat is obvious, applying for Government support to reach 90% Virgin Serves ca. 50% of UK premises – and not planning to expand significantly beyond that • The “last 10%” of households is beyond an incumbent’s capacity or inclination…. • In the UK, it contains at least 2.5m properties • And it is our sweet spot!
  • 6. Why rural broadband?Conventional industry wisdomsays it’s not economic The evidence says otherwise…. The US has discovered the cost of delivering fibre-optic broadband is approximately the same in rural and urban areas: • Higher take-up rates in rural areas reduce the acquisitions costs • Lower dig costs mitigate the longer distances between customers Source: Calix report to the FCC in the USA
  • 7. The opportunity“Final 10%” > 2,500,000 premises £1,000-£1,500 to deliver a fibre each one … creating about £150 annual gross cashflow from line rental alone… … with a cash payback in 7-10 years… … but exit in five years at industry multiples of 10x cashflow provides the value uplift
  • 8. In Europe it’s already happening A European market reality Most new fibre-optic broadband is not being installed by incumbentsSource: European FttH Forecast, 2011-2016 Graham Finnie, Chief Analyst Heavy Reading
  • 9. So why hasn’t it started here? Because: 1. BT’s & Virgin Media’s investors* expect cashflow, not “speculative” investment 2. BT has little incentive to replace a highly cash-generative copper network 3. BT has faced very little competition in rural areas 4. The demand has never been as clear as it is right now 5. Government grant funding is only just now becoming available* and managementincentive schemes
  • 10. While it’s new to the UK…. Numerous commercial successes, including: • OnsNet, The Netherlands 90%+ uptake AltiBox, Norway 66% uptake • Hiawatha Broadband, USA 84% uptakeNotable scale successes include: • Reggefiber recently raised €250m • Illiad recently raised €200m Notable exit values include: • Hafslund Fibernett 14.6x EBITDA • MetroWeb 10.7x EBITDA
  • 11. Industry’s lessonsLessons from OnsNet Lessons from BT• Community engagement, • Consumers need to have what OnsNet calls the “us choice of familiar brands feeling” • Make it easier for national• Traditional “supplier-led” ISPs to sign up approach is not enough • “Open Access” always• Local services are key to trumps “Vertical demand integration”!
  • 12. The teamDirectorsMichael Armitage Founder of Broadway Partners, the Asset Manager, with 30 years in Telecoms/CityHugo Pickering Cotswolds Broadband founderManoj Khosla 30 years City experienceMartin Sherwood Key principal at Enterprise Private Equity with extensive EIS experienceAdvisory PanelAdrian Wooster Specialist in rural broadband currently advising the GovernmentKees Rovers Community fibre pioneer Plus, project teams within each Investee Company
  • 13. Fund strategy The Rural Broadband Fund’s strategy is to invest where: • Demand is highest • Competitive threats are weakest • Potential exits are clear
  • 14. Fund strategyMinimise Micro-trenchingcosts Community wayleaves Rapid deploymentMaximise Demand stimulationuptake & Aligning interestsrevenues Businesses helps to capture Public sector externalities MobileMinimise Co-investmentrisk Alignment with Government policy
  • 15. Investee companies Cotswolds Broadband • Most rural county in South East • High per capita income, high incidence of home- working and weekenders • 9,000 households, £5.5m capexNorth Dorset Broadband • Strong community focus, high incidence of home-working • 5,000 households, £4.5m capex South Hams Broadband • Stable resident population with strong tourism dependency • 1,200 households, £1.1m capex …. plus, a large pipeline of prospects
  • 16. Target returns Mid- • Returns of £1.54 for each 70p* • Equivalent to an IRR of 21% over four case years • £2.55 for each 70p net Up-side • Equivalent IRR of 37% Down- • £1.07 for each 70p net case • Equivalent IRR of 11%Assumptions: • 20% sweat equity • Assumes exit in year 4 • Target returns post fees and management incentive * £1 less 30% tax relief
  • 17. Exit route• Multiple potential exit routes – Trade sale/industry consolidation – Sale of assets to infrastructure, pension or private equity funds – Refinancing via lending institution• Keys to successful “scale” Think “industrial strength” from the outset “standardisation”
  • 18. Details of the offer• Fees charged to the companies, not the Fund – Investors get tax relief on 100% of their investment• Issue costs 7.5% of funds raised on first £2m – 6.5% thereafter• Annual management fee of 2 x 1%• Intermediary commission of 3%, or 2% plus 0.35% for four years
  • 19. Details of the offer• Minimum investment of £10,000 – In increments of £5,000• Minimum Fund subscription of £2m• Offer closes earlier of January 31st 2013 or full subscription, unless extended
  • 20. Conclusions: why this fund?• Unsatisfied Demand – In rural areas: greater than urban, pent-up, and unsatisfied• Limited Supply – Limited competition thanks to incumbents’ balance sheet, cost structure & organisational constraints• Manageable Risk – Risk mitigation via Open Access model, high levels of community engagement, focused execution• Attractive Returns – Enhanced returns via RCBF grant money• Clear Exits – Via industry consolidation, infrastructure investors, or re- financing
  • 21. Don’t just listen to us…..“The internet has the power to overcome the problem ofrural isolation. It can revolutionise rural job opportunities,community life and the whole rural economy….It will bring far more opportunities to rural England thanthe previous innovations of canals and railways, puttingpeople in touch with rest of the world….It’s outrageous that there are still parts of the countrywhere the internet is still painfully slow because theyhaven’t got broadband yet.” Owen Paterson, Defra Secretary, speech 12/9/12 “Cotswolds Broadband’s vision of a broadband service that covers the UK in its entirety is a key part of the future of rural Britain. Without companies like this, we are in danger of disenfranchising large sections of our population” Martha Lane-Fox
  • 22. Assistance Martin Sherwood T 020 7487 8482 M 07768 765 542 E msherwood@enterprisepe.com Christian Elmes T 020 7487 8483 M 07809 686 439 E celmes@enterprisepe.com
  • 23. The Rural Broadband EIS Fund Sponsored by Enterprise Private Equity Limited