CityFibre acquires Entanet in £29m cash deal

AIM-listed CityFibre has acquired Mobeus-backed Entanet for £29m in a cash deal that enables the alternative fibre infrastructure provider to focus on wholesale fibre services and speed up the commercialisation of its fibre assets. CityFibre expects to realise synergies of over £3m per annum within three years by combining its fibre infrastructure with Entanet's wholesale products, systems and relationships with channel partners.

Entanet has over 1,500 channel partners which substantially increases CityFibre's wholesale capabilities and its relationships with service providers.

The combined businesses create a wholesale provider with full fibre infrastructure, giving Entanet's partners access to CityFibre's growing national footprints to deliver gigabit-speed services.

These will be offered alongside Entanet's existing connectivity portfolio of fixed, wireless and mobile data connectivity services as well as hosted voice and telecoms.

Entanet CEO Elsa Chen (pictured) said: "Our partners will soon be able to take a strong and highly competitive proposition to the market, reaping the rewards of CityFibre's national full fibre infrastructure footprints and next generation products.

"They will continue to enjoy the full support of Entanet's long-established and mature channel strategy.

"Together, we are creating a new breed of wholesale service provider that will empower channel partners to change the connectivity market landscape."

CityFibre CEO Greg Mesch (pictured above) said: "With Entanet now part of the CityFibre family, our combined offering will accelerate the take-up of services over our growing network footprints, leveraging Entanet's channel partner network and continuing to transform digital connectivity for thousands of UK businesses."

CityFibre also intends to double its market value by raising a further £200m – £185m of which will be underwritten by Citigroup, finnCap, Liberum and Macquarie. CityFibre aims to raise further proceeds through an accelerated bookbuilding process and additional proceeds of up to £15m through a non-underwritten offer for subscription.

CityFibre plans to expand its fibre metro networks from 42 UK towns and cities today to not less than 50 towns and cities by 2020; and will begin constructing a Fibre to the Home FTTH) network to address the residential market in five to ten UK towns and cities during 2018.

This follows CityFibre's successful participation in the FTTH trial in York which demonstrated strong demand from ISPs and consumers for gigabit speed FTTH services.

CityFibre is now in advanced negotiations with ISPs that will market full-fibre broadband services to consumers, deployed over its networks.

Mesch added: "We are building Gigabit Britain, driven by growing demand from Internet Service Providers and their customers to switch to full-fibre infrastructure.

"Our announcement to enter the residential market is the first step in our vision to bring gigabit connectivity to millions of UK homes and small businesses.

"This is about more than just better broadband - this is about future-proofing the digital infrastructure we've all come to rely on at work, at school, at home and in our communities. It's also about stimulating the market, creating jobs and growth.

"The Government and Ofcom recognise that investment in alternative fibre networks will catalyse growth in the UK's digital economy as well as reduce the country's reliance on BT Openreach.

"With Entanet now part of the CityFibre family, our combined offering will accelerate the take-up of services over our growing network footprints, leveraging Entanet's channel partner network and continuing to transform digital connectivity for thousands of UK businesses.

"Today's capital raising also better positions CityFibre to undertake larger projects coming forward with the public sector as well as mobile operators in readiness for their small-cell roll-outs and 5G services."

Megabuyte analyst and Comms Dealer contributor Philip Carse commented: "The announcement is yet another signpost in what is clearly very strong investor support for fibre network infrastructure, and comes barely a day after the launch of the UK Government’s own £400m fund, which is aimed at triggering a total of £1bn investment, and few weeks after Gigaclear raised another £111m. 

"In particular, this funding is aimed at full fibre infrastructure, taking it to the premise rather than the fibre to the cabinet variety preferred by BT, which inevitably limits the speeds available. 

"We assume that BT’s competitors such as Sky and TalkTalk will be leading the queue to use the new FTTP networks, whilst a whole host of B2B service providers will increasingly start to use CityFibre metro networks, rather than rely wholly on BT Openreach or BT Wholesale.

"Meanwhile, the Entanet acquisition appears expensive at first blush, but comes with a compelling strategic rationale in terms of gaining a large swathe of wholesale partners as well as access to systems (a focus for Entanet investment over the past couple of years). 

"It will also boost CityFibre’s engineering and software development employee base. Mesch also noted that Entanet’s existing customer base will provide strong support for expanding to certain new towns and cities. The price looks much more modest if the target £3m per annum synergies can be achieved."