Michael Armitage - Tax Efficient Community Investment
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Michael Armitage of Broadway Partners. Presentation to the INCA Rural Community Broadband Seminar, 06 March 2013
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Michael Armitage - Tax Efficient Community Investment
- 1. Tax-Efficient Community Investment INCA Rural Broadband 6th March 2013 Broadway Partners
- 2. The Lightbulb Moment Conventional wisdom: 1. “Rural FTTH is too expensive” 2. “BT is too dominant” 3. “Ofcom is too supine” 4. ‘Make excuses….’ Unconventional wisdom: If you: 1. Recognise stakeholders’ motivations 2. Minimise risk, and 3. Get the ‘right’ money You can ‘make it work’
- 3. Getting the ‘Right’ Money • REAL challenges – “if it were easy….” • BT effect…. No precedent…. No track record….Dotcom legacy….Telecoms not a recognised asset class Exit at 9x ebitda, or Risk/cost refinance at 7% of money Opportunity The Challenge 16%-33% Cashflow IRR • Big hooks needed to get investors on board: • RCBF grant – 25% of capital cost • EIS ‘wrap’ – big tax benefits and an established channel • Focusing on investor-as-user
- 4. Twin-Pronged Investor Strategy • Rural Broadband EIS Fund to capture HNWs, nationally • Online offers, also EIS- compliant, targeted at local communities… • Package: + ~7% Project + ~5% RCBF + ~9% EIS tax = 21% IRR
- 5. So, Do You Believe in FTTH? • Then prove it! To invest in any or all of these great projects, go to: www.enterprisepe.com or www.fundthegap.com • By the way, comes with FREE BROADBAND (1) • (1) Free: “invest £1,500, net £1,050 – exit with £2,100 in four years, a £1,000 profit, or £25/month
- 6. And finally, introducing RuBI….. • A variation of the Oxera/VOD co-investment model • Combining Community need…. • …. with the Scale imperative • Local investors/users provide initial 3-year equity, EIS tax-enhanced, and assume all the risk • RuBI Fund provides the efficient long-term financing, efficient procurement, and optimal exit • The Genius of it: 1. Co-investment + pent-up demand eliminates demand risk 2. £300m ‘seed’ contribution could catalyse £1bn+ investment 3. Project scrutiny devolved to intermediaries 4. Government as co-investor avoids State Aid issues
- 7. THANK YOU! Contact: michael.armitage@broadwaypartners.co.uk +44 7715 421 636
Editor's Notes
- So what was my lightbulb moment? When did I realise there was something worth pursuing here? It was all pretty familiar stuff – a 20-minute section of a train journey between Bristol and Exter, with no signal. Our house in South Devon, where we have no mobile signal at all, unless you go to the top of the garden. And broadband is at 0.2Mbps, and 20K on a Saturday night. Which got me to thinking – what is the nature of the market failure that allows these NotSpots to exist – despite the undoubted wealth and needs of the community? This was followed by an exploratory trip to a NextGen conference, 2-3 years ago, when everybody seemed to have a sense of the injustice and unfairness of BT’s dominant position, and they had all the reasons and excuses for not doing anything. My lightbulb moment was in realising that, if conventional wisdom doesn’t give you the answer you’re looking for, you’ve got to turn to unconventional wisdom. Got to recognise where people are coming from – BT and Analysys Mason and Ofcom and and and And harness the positive side of what motivates people – so tap into their sense of community responsibility, their energy, their greed, their desparation And crucially, eliminate risk factors as far as possible before you dig your first hole – there’s no ‘real option’ or optionality about putting in fibre – once you’ve started diggiinmg, you’ve really go to kleep going until you’ve finished. The scope for mid-course adjustment is pretrty limited. So if you fail to prepare, you can prepare to fail!