CityFibre has acquired FibreNation from TalkTalk Group in a circa £200m deal that positions CityFibre as the third national digital infrastructure platform, increasing its rollout target from five million to up to eight million premises in an investment programme that totals up to £4 billion.
FibreNation was founded in 2018, four years after a joint venture between TalkTalk, Sky and CityFibre (TalkTalk had a two thirds holding in the JV) was launched to deploy full fibre infrastructure and services across the City of York. Approximately 49,000 premises can currently access gigabit speed broadband services from TalkTalk.
FibreNation also has network construction projects underway in Harrogate and Dewsbury and is mobilising in both Knaresborough and Ripon, with plans to make full fibre available to up to three million homes and businesses.
As part of the wholesale agreement, TalkTalk has made long-term commitments across CityFibre’s existing and future network rollout.
CityFibre has also struck a wholesale agreement for business services. TalkTalk and CityFibre will begin systems integration in preparation for the future launch of TalkTalk’s full fibre services.
The acquisition of FibreNation and the addition of its team will be a boost to CityFibre’s design, planning and deployment capabilities as it continues to scale, enabling the expansion of the Gigabit City Investment Programme across more than 100 towns and cities.
CityFibre estimates that up to 7,000 construction jobs outside London will be created at the project’s peak. To support the expansion, CityFibre will establish a Northern Centre of Excellence, increasing its design and build capabilities to help deliver a new generation of digital infrastructure throughout the north.
Greg Mesch, Chief Executive at CityFibre, said: “Today’s announcement establishes CityFibre as the UK’s third national digital infrastructure platform allowing millions more consumers and businesses to benefit from access to faster, more reliable services.
“The UK is a service-based economy, and this runs best on full fibre. Ensuring national coverage is critical and this can only be achieved by driving infrastructure competition at scale. This deal demonstrates the appetite from industry to see it established.”
Tristia Harrison, Chief Executive of TalkTalk, added: “This agreement is good news for TalkTalk and good news for Britain’s fibre roll-out. Our investment over the last five years and the work delivered by the FibreNation team, combined with CityFibre’s platform, will support wide-geographical reach of full fibre and further drive competition and customer take-up in the market.”
The deal requires shareholder approval for an expected close in March/April 2020.
Megabuyte Chief Analyst Philip Carse commented: "Assuming the deal does go through, it seems to be a pretty good outcome for TalkTalk, simplifying the business (moving from a fibre network builder/funder/operator to pure fibre resell) and reducing debt.
"The up to 4x return on investment (based on March 2019 values and excluding York) is also fairly decent, with comparable multiples ranging from an estimated 1.3x for CityFibre’s take private to 2.1x for the InfraCapital/Gigaclear deal and an estimated around 2x for the recent KKR/Hyperoptic deal.
"TalkTalk intends to retain the £200m to improve its leverage (pre IFRS16 net debt of £830m at September 2019). This would reduce the current 3.1x expected 2019/20 EBITDA of £269m to around 2.3x."
TalkTalk will report a nine month trading update on the 31st January.
CityFibre also announced a revamped agreement with FTTP partner Vodafone that sees it open up its networks to other consumer ISPs sooner than planned.
Vodafone restructured its existing deal with CityFibre to encourage it to build its fibre infrastructure more quickly and to more places.
The addition of other anchor tenants for CityFibre strengthens its ability to provide wholesale competition to Openreach and encourages faster deployment of FTTP networks.