Inside the OpEx Awards: EQT's Kabel Baden-Württemberg

The winner of the overall EMEA category, as well as the TMT sector category, EQT's KBW investment is a blueprint for how to make money in the highly competitive cable sector.

The cable industry has been a fertile hunting ground for private equity firms over the last decade or more, but it is also one of the most fiercely competitive sectors.

EQT Partners’ investment in German cable operator Kabel Baden-Württemberg (KBW), however, proved to be something of a blueprint for how to do it right. It’s the reason judges were unanimous in their praise for EQT’s stewardship of the business, and why it was chosen as the winner not only of the TMT sector category, but of the overall EMEA category too.

Thomas Pütter, for example, was effusive in his praise: “The EQT/KBW submission was absolutely stunning. It hits all the buttons without any doubt. And the size … significant, large financial stakes were put in the ground to transform a business in a very impressive manner. Hats off.”

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The firm’s plan was simple – as the most successful ones often are – and centred on changing the character of the business. Marcus Brennecke, a partner at EQT and head of the firm’s German office who led the firm’s investment, explains: “EQT’s intention was to transform KBW from a technology-focused utility-style company into a more mass-market, consumer-focused service business with top quality products and service.”

To do that, the firm realised it would need to supplement the firm’s management team in key areas. “A new chief executive, chief financial officer and chief marketing officer, for example, were recruited. For each avenue of growth – triple play, video on demand, mobile offering – we had specific expertise on the company’s board. Klaus Thiemann [an EQT industrial advisor], was appointed interim chief executive, but ended up staying in post for two years and did a fantastic job – he was a true change agent, driving a lot of the changes we wanted to happen in terms of developing an excellent service culture. After an exhaustive search a successor was found in Harald Roesch – he knew the cable space well, is very strong in execution and has done a great job in the remaining 2.5 years.”

EQT also ploughed more than €600 million into the company to help fund an accelerated network upgrade, improve sales and marketing and invest in new products.

“Don’t forget, this was a secondary deal, so someone had actually done what you might call the basic housekeeping beforehand,” adds Edi Truell. “And yet KBW nigh-on tripled EBITDA over the period; it was clearly growing significantly faster than its competitors. And I think that was through a degree of innovation in the product offering rather than just squeezing out cost.”

Brennecke said the key to the investment’s success had been EQT’s industrial approach. A sale price of €3.2 billion to trade group Liberty Global, which delivered what an investor called a “very punchy” return, suggests he has a point.

Private Equity International will be featuring all award winners over coming weeks.