EQT eyes more US, Euro TMT infra acquisitions

Six months after EQT closed its fourth infrastructure fund at its hard cap of E9bn, EQT Infrastructure IV already boasts four portfolio companies. Two of these are TMT-focused businesses: Swedish fibre company IP-Only, and Melita, the Maltese telco, acquired in June and July, respectively. Another two are now set to join them: Zayo, which EQT Infrastructure agreed to acquire in May alongside Digital Colony, in a transaction valued at US$14.3bn, and German fibre optic firm inexio – EQT Infrastructure’s most recent acquisition.

With these acquisitions, EQT Infrastructure IV will already bypass the number of TMT-focused portfolio companies held by its predecessor fund, EQT Infrastructure III, which closed at its E4bn hard cap in 2017. Zayo will also mark EQT Infrastructure’s second TMT investment in the US.

Talking to Thomas Simpson of TMT Finance, Jan Vesely, a Partner at EQT based in New York, explains the ins and outs of communications infrastructure deals on both sides of the Atlantic and how EQT might start to look beyond the fibre space.

European expertise transferred

In Europe, EQT Infrastructure’s presence in the TMT sector is well-established, with a string of high-profile transactions making headlines in recent years. The firm sold submarine fibre provider IslaLink in 2018 and offshore communications provider Tampnet earlier this year, while the acquisitions of Dutch fibre company DeltaFiber NL, and GlobalConnect, an alternative fibre-based data communication services provider in Europe, took place in 2017. Along with EQT’s growth in recent years, however, has come heightened ambition, and a vision to apply its hands-on, industrial approach to infrastructure investing beyond just in Europe.

EQT Infrastructure’s first foray into the US TMT space came about with the acquisitions of Lumos Networks and Spirit Communications, which were ultimately combined to form SEGRA – now one of largest independent fibre bandwidth infrastructure companies in the US. And with both SEGRA and Zayo in the portfolio, EQT sees more and more investment prospects in the US.

“We are seeing opportunities on both sides of the Atlantic but in the US there is a much larger pool,” says Vesely. “That's largely driven by the size of the country and how developed it is, but also by the way businesses are built in the US and how much outsourcing is done by the carriers, especially the mobile carriers.”

Being successful in new geographies requires flexibility, however, and differences between the US and European communication infrastructure markets have prompted EQT to adjust its investment strategies in the regions. Vesely states that in the US, EQT’s infrastructure investments primarily come in the form of B2B assets, while B2C has also been a focus in Europe. “In Europe, there has been a significant amount of investment in the residential side, while in the US cable is well-invested nowadays so finding the right competitive environment in the space can be more testing,” he adds.

The rise of the infrastructure fund

EQT’s investment in Lumos was the first fibre investment in the US made by a dedicated infrastructure fund. But now EQT finds itself regularly rubbing shoulders with rivals.

Vesely says: “The face of our competition has changed dramatically over the course of just three to four years. Back then EQT was the only infrastructure fund investing in the States – now, every single player in the market is actively looking for opportunities.”

Private equity firms still vie for infrastructure assets, although their focus seems to be more on the “early stage” investments and when there is more “technology risk included”, Vesely notes. “Finally, infrastructure funds have bought into the fact that the right telecoms assets are infrastructure.”

The importance of meeting and building long-term relationships with management teams has helped drive EQT’s momentum, with Vesely stating that he personally is “constantly out” attending meetings and conferences. “As soon as a business starts to think about funding opportunities or potential sales, our objective is to have met them numerous times already and to be in a position to support their requirements,” he notes.

“We have only been active in the telecommunications infrastructure space in the US for three or four years but it already feels like we have been here much longer: we have met a lot of teams and built a number of great relationships. We build these relationships with companies and management teams so that EQT is the first call they make, and hopefully the last.”

Moving beyond fibre

“EQT spends a lot of time thinking about different subsectors to invest in – about where we expect a lot of growth,” notes Vesely.

In the communications infrastructure space, fibre has been EQT’s go-to. Vesely tells TMT Finance that significant growth prospects and positive trends have compelled the firm to centre its investments in the space. “EQT has been highly focused on fibre,” he says, adding that the positive drivers include 5G build-out and the move to the cloud, which require “massive bandwidth and fibre connectivity”. 

Uncovering fibre investment opportunities is easier said than done, though, and outlining the right growth opportunities, and hinderances, is more important than ever as the demand for connectivity reaches new heights. And, in terms of further fibre investment, Vesely states that EQT has “pretty much covered the entire US” in terms of new fibre platforms, but still sees opportunities to start new platforms in Europe. “The firm is heavily invested in the Nordics and the Netherlands but there is still huge potential in other countries,” he says. 

But while EQT has focused on the fibre space to date, things might be about to change, with new opportunities proving increasingly attractive.

“Other than fibre, we are also beginning to focus more and more on datacentres,” Vesely tells TMT Finance. “We don’t have a stand-alone datacentre platform yet and we like certain subsectors of the datacentre space. It is a category that is growing rapidly across the globe – we are seeing a lot of opportunities and there are many businesses that we would love to support and would be well-suited for EQT.” 

Selecting the right datacentre opportunity is high on EQT’s agenda, and the US is in the firm’s sights. “There are two countries where hyperscalers come from: the US and China, and we are not currently active in China. US companies insource a lot of their business domestically and often look for partners to help them grow abroad.” 

EQT Infrastructure seems to be on a roll at the moment. A record fundraise and the landmark acquisition of Zayo are proof of that alone. What is clear, though, is that there is certainly more to come.