VTB Capital, the buyout arm of Russia’s second-largest bank, has bought a minority stake in satellite television operator Tricolor TV.
No financial details for the deal were disclosed, but market sources said the amount of the transaction was close to the lower end of the $50 million to $150 million bracket.
VTB plans to grow the company in the Russian market and lead an IPO in a few years’ time, Tim Demchenko, head of private equity and special situations at VTB, told Private equity International. Tricolor could reach an enterprise value of $1.5 billion by 2015, while the eventual listing value could be worth $500 million, according to reports.
Tricolor is Russia’s largest satellite TV operator and the third biggest in the world by number of subscribers. Yet despite this dominant position, there was still significant room for the business to grow, Demchenko said.
There is still huge potential to grow the client base. In terms of satellite penetration, Russia still has some way to go
“When it comes to telecom and media, there isn’t a lot to play at the moment: mobile and wireless is no longer a private equity play; and the technology part of it, like internet, is much more suited to the venture capital side of things. But we are still very excited about the so-called alternative telecoms: pay for play and satellite.”
According to market estimates, the sector counts 25 to 30 million subscribers across all platforms – and it keeps on growing at a double digit rate every year, Demchenko said. Tricolor, the leading player in the market, was therefore well positioned to benefit from an upward trend, he said.
“It’s been adding 2.5 million new customers per annum over the last three to four years. Even if the pace goes down a little bit, there is still huge potential to grow the client base. In terms of satellite penetration, Russia still has some way to go.”
This positive outlook for Tricolor was compounded by the ability to increase revenue per customer, he said, as well as broadening the scope of services provided to private and corporate clients.
“At the moment, Tricolor is just a pure play satellite TV provider. But there is definite potential to branch out into other services, such as internet, which it has not tapped into yet.”
VTB financed the investment through funds mostly provided by its parent bank, VTB Group, as part of its evergreen vehicle called Fund I.
The firm is considering raising a closed-end fund in the future, he explained, but preferred to dedicate its immediate resources to sourcing deals and achieving realisations. “Raising a fund remains a core pillar of our strategy. We are just waiting for the appropriate timing and proper momentum.”