DCS posted EUR42 million revenue and more than EUR10 million in earnings before taxes, interests, depreciation and amortization (EBITDA), on the back of a slight rebound in consumer spending and of a greater demand from the business sector, Malacopol told ZF in an interview.
“2013 was better than 2012 in that consumers had more disposable cash. Because the reality is that outside major cities, the amount of disposable cash is lower or it is harder to get. Unlike major cities, in the other Romania, the bigger part of Romania, regular income is lower but there’s also seasonal income that can be interesting,” DCS chief executive said.
“In other words, one could really see a recovery in terms of consumer spending. Internet sales went very well, digital cable TV sales did OK and even landline phone service increased by a higher rate than in 2012.”
DCS, which was formed by the merger and later acquisition of a number of small cable TV service providers, developed its network in small cities and in rural areas, where competition from giants like RCS&RDS, Romtelecom and UPC is low. Things have not changed too much, Dinu Malacopol said.
“There’s no significant overlapping of our network with our competitors’. Overlapping exists but it’s not significant and of course each has its own products, its own position on the market. Our position is based on local content, because there are still a great deal of local, country or regional TV stations that are much more interesting to the people in the households in the area than the national TV channels.”
According to information on the market, the company reached half a million cable TV, Internet and landline phone service subscriptions last year. Dinu Malacopol only said the number of subscriptions stood at more than 350,000, without saying how many of those were for TV, Internet or phone service.
DCS uses two brands on the market, AKTA for the services provided to consumers and Dial Telecom for corporate customers. The corporate customer and telecom operator segment has seen significant growth, as well, as the crisis drove a number of rivals out of business, Malacopol said.
“Our wholesale (services for telecom operators i.e.) business increased, which shows the crisis cleaned up the market of small and medium-sized players somewhat and things are starting to calm down. Our corporate customer business, too, grew by 15% year on year.”
Digital Cable Systems’ majority shareholder is private equity firm Pinebridge, which owns about 65%, while the rest of the shareholders are Romanian companies and individuals. Pinebridge paid EUR45 million for its stake in 2007. Pinebridge, held by US’ AIG until 2010, is now held by Pacific Century Group, an Asian private equity group headquartered in New York.
DCS left the direct-to-home TV business in 2011, selling it to Romtelecom for EUR11.2 million or about EUR140 per subscriber, according to a report of Romtelecom’s majority shareholder Greece’s OTE group.
Pinebridge hired financial advisory firm Ernst & Young (EY) this year to find a buyer for DCS, ZF has learnt. “EY was hired to build and manage the data room, to provide information, keep in touch with potential investors, receive the bids and assist the shareholders in a potential deal,” several sources told ZF. The process is in its early stages and Pinebridge is not pressuring for a quick exit, expecting a EUR200 million to EUR250 million deal for DCS, according to ZF data. The firm relies on the interest of the major local telecoms and on investors in the region.
Neither Dinu Malacopol nor EY officials commented on the information. Still, the DCS CEO says that an operator held by a private equity firm is always for sale if the price is good and under the current circumstances, when cable company valuations are on the rise in Europe, the moment is even better for such talks.
“DCS has been and will be for sale if the offer is interesting. It’s only natural; it’s the lifecycle of an investment fund. Based on the valuations on the international market, now seems to be a good moment. We may consider a competitive assessment process and if the result thereof is interesting, we may think of an exit.”
Though he avoided any comment about how DCS might be valued or about the price of a deal involving the company, Dinu Malacopol says such a deal is not expected any time soon, so the operator will carry on with its investment strategy.
“Until such time (a deal i.e.) comes, we’ll continue with our investments. We are not sitting and waiting for anything. We have EUR10 million to invest this year and we will invest them in our networks and other networks. I expect consolidation in the overall telecom business at the end of the year, not just in the cable TV sector and not just in Romania. I think what’s happening now is only natural: after a crisis comes the beginning of a new cycle of growth.”
So are talks with potential investors – which might theoretically be Orange, Vodafone, Romtelecom, UPC or RCS&RDS or private equity firms or operators in the region more intense now?
“There have been talks since I’ve been here, it’s normal, we are an interesting player on the market. No process has been started yet that would lead to an exit soon. On the other hand, there clearly are some very interesting synergies between DCS and each of the major operators in Romania.”
What he means is that clearly the Romania beyond the major cities is a country of cities and towns where 60% of its population lives and he does not think that any operator with a strategy dedicated to the Romanian market can ignore this. “We have a very interesting market to offer, which is showing signs of consumer spending rebound.”
Digital Cable Systems expects more than 20% growth in revenue in 2014, its CEO says.
“We set out to attain at least 20% growth via sales, because one can feel it this year that people are starting to spend again, and via acquisitions, because of the additional costs generated by taxes and content in the industry making small and very small companies head towards an exit from the industry.”
This is a consolidation trend that is showing across all market levels, for small, medium-sized and giant players, considering what is happening in Europe and in the world. Therefore it is clear that Internet will be the bet of the future, Malacopol added.
The cable TV operator also plans to expand into mobile telephony services by launching a mobile virtual network operator (MVNO) using the network of an existing operator.
“The problem is not if but when DCS takes this step,” Malacopol says. “Because I don’t think that in a competitive market like Romania a company can ignore the 5-play trend and stay out of it for too long.”
UPC, the second largest cable TV service provider, too, plans to launch a MVNO but has yet to say when.
(English version by Loredana Fratila-Cristescu)