Private equity sees last hurrah in Cinven's Numericable exit

LONDON Mon Apr 7, 2014 2:38pm EDT

General view of the logo above a store of French cable operator Numericable in Paris, March 7, 2014. REUTERS/Charles Platiau

General view of the logo above a store of French cable operator Numericable in Paris, March 7, 2014.

Credit: Reuters/Charles Platiau

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LONDON (Reuters) - Private equity firm Cinven made a 1.5 billion euro ($2 billion) capital gain on its investment in French cable operator Numericable (NUME.PA), but said on Monday the era of such hugely profitable deals for its industry in the cable sector is ending.

Cinven said on Monday that it had realized its biggest ever gain, giving a return of 4.35 times on the original investment, as part of a deal in which Numericable will buy Vivendi's (VIV.PA) telecoms arm SFR, creating the second-biggest player in a reshaped French telecoms market.

However, consolidation in the European telecommunications sector with deals such as the SFR purchase means private equity funds face a shrinking pool of available companies. This problem is partly of their own making as they sell off most of their telecoms assets, leaving the sector dominated by large corporations.

"The role of private equity in European cable is probably coming to an end," said Nicolas Paulmier, Partner at Cinven. "There may be a role in central Europe for a smaller player, but the big deals for private equity in cable are now over," he told Reuters.

Cinven created Numericable nine years ago out of three cable operators on which it spent 528 million euros. By 2008, when U.S. private equity fund Carlyle also bought into Numericable, the company had a 99 percent share of the French cable market.

Under the weekend deal, Cinven and Carlyle have agreed to exchange their combined holding of 35 percent in the cable firm for cash and shares in Altice, the holding company of Numericable's billionaire backer Patrick Drahi.

Cinven's return was higher than the 2.8 times it made in 2013 on its exit of Dutch cable operator Ziggo.

Carlyle declined to comment.

CONSOLIDATION THREAT

Private equity funds buy stakes in companies and try to make returns to pay back to investors, often by building up a firm with mergers and acquisitions (M&A) which they then sell on to other private equity funds, or companies in the same sector.

Numericable's 13.5 billion euro purchase of SFR is the latest in a series of deals in the telecoms sector. Last month Vodafone (VOD.L) bought Ono from several private equity firms including Providence Equity for $10 billion,

Last year also saw several mega-acquisitions, including Liberty Global's (LBTYA.O) $15.8 billion purchase of Virgin Media and Vodafone's 7.7 billion euro buy-out of Kabel Deutschland.

As available assets dwindle, the growing size of the companies involved will make it even harder for private equity firms to outbid them for assets.

"I think cable will remain attractive for private equity but they will have a hard time doing again what they did a few years ago," said a source familiar with the Numericable deal.

Private equity has already lost out in overall M&A deals this year, and its global share is down by a third as funds jostle with conglomerates seeking to spend vast cash piles accumulated since the financial crisis.

"There isn't really anything big left to buy unless someone wants to target Liberty Global. They've snapped up a lot of assets, as has Vodafone, and there are few left to buy," said a sector banker.

($1 = 0.7303 Euros)

(Additional reporting by Anjuli Davies; editing by Clare Hutchison and David Stamp)

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