Private Equity Targets Telecom

Excerpt from our One Page Annotated Wall Street Journal Summary (receive it by email every morning by signing up here):

Telecoms Are Juicy Prey For Private-Equity Firms

• Summary: It looks like a $50 billion acquisition of Telecom Italia's (TI) mobile unit is not completely off the mark: these are good times for telecom companies to raise private-equity funding. A year and a half ago, seven funds invested $500 million each and raised additional debt in order to buy SunGuard Data Systems. Today, the funds have almost doubled their dry powder: Blackstone Group has $15.6 billion, and Texas Pacific Group has $15.2 billion. According to John Coyle, the head of JPMorgan's group that advises on and helps private-equity firms finance their deals: "Even a $10 billion or a $12 billion equity check is achievable. We still don't know the outer limit when it comes to raising debt." The stability and reliability of telcos' cash flows means that private-equity buyers can finance most of their investment with debt. And while telecom has been one of the strongest industry sectors this year, valuations are attractive for the private-equity investors due to the low cost of debt. Since the traditional potential acquirers--other telcos--are loathe to burden their balance sheets with debt, the playing field has been left wide open for the private-equity firms.

• Comment on related stocks/ETFs: Telecom Italia was expected to announce plans yesterday to sell its mobile unit; while no formal announcement was made, the fixed and mobile units will be separated. Roger Nusbaum is favorable towards the telecom sector; see additional Seeking Alpha coverage of the warming telecom sector through ETFs ((IYZ), (VOX), (IXP)).

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