True North and TA Associates have begun talks with Switzerland’s private equity fund, Partners Group, to sell their 95% stake in Atria Convergence Technologies Ltd (ACT), India’s largest non-telco internet service provider. The company offers services under the ACT Fibernet brand.
ACT’s existing investors are reportedly looking at a valuation of $1.4 billion to $1.6 billion for the company. Both True North and TA Associates have been “evaluating ways” for a “profitable exit” and to monetise their investment of $500 million which they made in ACT in 2015, as per a report by the Economic Times.
Both investors had previously tried to monetise their investments through an initial public offering in 2017-18. However, they shelved their plan to raise Rs 800 crore ($108 million) through an IPO due to poor market conditions, which impacted its valuations. This coincided with Reliance Jio’s foray into the fixed broadband space.
True North and TA Associates have tried to monetise their investments through a sale or listing earlier. In 2017-18, they filed to raise Rs 800 crore through an initial public offering. But competition from its deep-pocketed rivals affected valuations and muted investor enthusiasm, analysts said.
The report said that the Swiss private equity fund is currently involved in due diligence before its final bids are submitted in the coming weeks. Both True North and TA Associates may completely exit from ACT after the deal but are exploring if they could retain a minority stake.
ACT, which has 1.7 million fibre broadband subscribers, is the fourth-largest player in the market. It has a presence in 11 cities in India and is planning to enter more cities this year to tap the work from home opportunity in the market.
The company had in 2018 bought Hyderabad-based internet service provider Beam Telecom, which had 30,000 customers to grow its business in Andhra Pradesh state. It considers Karnataka, Andhra Pradesh, Telangana and Tamil Nadu as its key growth markets.
The move comes when India’s fixed broadband market sees an increased push from telecom operators like Reliance Jio and Bharti Airtel trying to expand their coverage and revenue from the segment significantly. Both Airtel (2.7 million) and Jio (1.9 million) are second and third-largest players in the market, which is led by state-run Bharat Sanchar Nigam Ltd. (BSNL), with 7.7 million subscribers.
Both Jio and Airtel launched cheaper plans with a bundled streaming device and free access to several over-the-top content streaming services to quickly acquire customers. Since last year, the price war between both telcos resulted in broadband prices slashed by up to 40% in India.
Airtel recently revealed that it is forming more partnerships with local cable operators to expand its home broadband services. These partnerships are aimed at increasing broadband penetration in smaller towns.
Jio, on the other hand, is deploying its own infrastructure to offer broadband services to both retail and enterprise customers.
ACT had reported a net profit of Rs 234.63 crore ($31.62 million) and Rs 1,520.27 crore ($205.41 million) in revenues FY20. Analysts believe that the ongoing tariff war between Jio and Airtel may impact ACT’s market share and profitability.
India is an under-penetrated wired market for both telephony and broadband. Fixed broadband penetration in India is currently very low at 6.1%, and this can easily more than double in the next few years. Comparatively, China has a fixed broadband penetration of 86%.
One of the main reasons behind the low penetration of fixed broadband is the cost of mobile data, which is the lowest in the world, and infrastructure-related costs since deploying fibre are costly in India due to right of way (RoW) related challenges.
As per a recent report by ICICI Securities, India’s fixed broadband subscribers have grown at a CAGR of 4% to 19 million against mobile broadband subscriber growth of 53.9% to 606 million in the past six years.
Fixed broadband penetration (% of households) is just 6.1% compared to 80-95% for many developed countries, ICICI Securities said.