Earlier this month, Liberty Global agreed to acquire Unitymedia, Germany’s second-largest cable operator, for EUR3.5 billion. This is equivalent to a multiple of almost three times Unitymedia’s 2008 revenue, or eight times its adjusted EBITDA. Based on Unitymedia’s latest results, from September 2009, this price represents a valuation of approximately EUR770 per subscriber. Although this valuation is a far cry from the inflated ones seen just before the recession hit, it indicates a renewed appetite for M&A activity, as the first signs of economic recovery are starting to appear in some countries. The transaction, which is subject to regulatory approval, is expected to be finalised in the first half of 2010.
Within the past five years, Liberty Global’s footprint in Western Europe had been reduced to the smaller countries of Austria, Belgium, Ireland, the Netherlands and Switzerland. The company had disposed of various operations in the region, including UPC France, in order to concentrate on expansion in what it regarded as the more promising markets of Central and Eastern Europe. This acquisition will give Liberty Global a foothold in Western Europe’s largest cable market, shifting its centre of gravity firmly back towards the West, and significantly increasing the scale of its overall European operations, as described in Table 1.
| |
Subscribers (pre-acquisition)1 |
Subscribers (post-acquisition) |
WE proportion (pre-acquisition) |
WE proportion (post-acquisition) |
Subscriber growth through acquisition |
| Homes passed |
16 677 |
25 434 |
57.3% |
72.0% |
52.5% |
| Total cable |
10 341 |
14 888 |
66.3% |
76.6% |
44.0% |
| Of which analogue |
6918 |
10 165 |
63.4% |
75.1% |
46.9% |
| Of which digital |
3423 |
4724 |
72.2% |
79.8% |
38.0% |
| Total satellite |
483 |
551 |
0.0% |
12.3% |
14.1% |
| Total video |
10 905 |
15 520 |
63.6% |
74.4% |
42.3% |
| Total broadband |
4261 |
5138 |
66.6% |
72.3% |
20.6% |
| Total fixed voice |
2681 |
3216 |
72.5% |
77.1% |
20.0% |
Table 1: Pre- and post-acquisition subscriber base of Liberty Global Europe, and proportion that is in Western Europe (WE) [Source: Analysys Mason, Liberty Global and Unitymedia, 2009]
Based on current figures, the acquisition would:
- expand the number of homes passed in Europe by more than 50% with the 8.8 million homes in Unitymedia’s coverage area, which includes major German cities, such as Cologne and Frankfurt
- increase the total video subscriber base by more than 40% through the addition of more than 4.5 million cable and satellite subscribers, while increasing the broadband and fixed voice subscriber base by 20%
- raise the proportion of Western European video subscribers from less than 64% of the total European base to nearly 75%.
At this stage, it is not clear whether Unitymedia’s operations will be rebranded as UPC Broadband, or whether they will continue to operate more independently, like Telenet and Cablecom. Nevertheless, Unitymedia should benefit from various synergies as a result of the merger, such as:
- the backing of a global player in the cable industry
- savings from joint procurement with the wider Liberty Global organisation
- more influence with content owners, and possibly sharing of content with UPC Broadband’s other German-language operations in Austria and Switzerland
- a network in a part of Germany that is adjacent to existing infrastructure in Belgium and the Netherlands.
But is the acquisition all good news for Liberty Global? Depending on how you look at it, the German pay-TV market can be seen as either a glass that is half full or a glass that is half empty.
The digital penetration rate for Unitymedia’s cable subscribers, at 28.6%, lags behind that of UPC Broadband’s Western European operations (34.6%) and Telenet (38.8%), both of which are owned by Liberty Global. Multi-play penetration remains low and, as a result, blended ARPU for the nine-month period ending in September 2009 for Unitymedia’s cable operations was EUR14.11 per month, which is significantly less than Telenet’s EUR35.16 per month, or even the EUR23.51 per month reached by UPC Broadband as a whole, including its Central and Eastern European operations .
So far, it has been hard to shake off Germany’s legacy of low pay-TV take-up and low ARPU, as many consumers are satisfied with the wide range of free-to-air (FTA) programming that is available. Another major obstacle faced by cable operators, in particular, is the lack of a direct relationship with a large proportion of their viewers, many of whom receive their services through a housing association that bundles the bill for various utilities with the rent. This hinders up-selling not only to higher-value TV packages, but also to multi-play bundles that incorporate fixed broadband and voice offerings.
It therefore remains to be seen whether a more commercial pay-TV culture, which is closer to that of markets such as the UK, can be brought to Germany. The fact that some leading FTA broadcasters have announced their intentions to offer a proportion of their premium content on a paid-for basis offers a glimmer of hope, as this may encourage the German population to pay for quality content. The growth of video-on-demand (VoD) and high-definition (HD) services may also stimulate greater spend on pay-TV services. Through its acquisition, Liberty Global will be competing against other players, such as Deutsche Telekom and a recently rebranded Sky Deutschland, which hope to achieve the same outcome.
1 All subscriber figures are for September 2009 and are in thousands.
Liberty Global Europe pre-acquisition includes UPC Broadband and Telenet.