CityFibre in ‘advanced’ talks on takeovers

A Goldman Sachs-backed broadband infrastructure company is planning to launch further acquisitions to “crack open” the BT and Virgin Media O2 “weak duopoly” after raising £1.1 billion and reaching one million homes.

Greg Mesch, chief executive of CityFibre, said that the company was in “advanced conversations” with other alternative network providers that had a “compatible footprint with ours”.

Mesch, 61, said that there would “now be a phase of consolidation” in the market and that CityFibre was the “natural choice” to become Britain’s third national network. “We are more active on the consolidation level than people may appreciate,” he said.

Mesch was speaking as CityFibre passed its millionth home, keeping it on course to reach up to eight million homes by 2025, about one third of the UK market, through a £4 billion investment programme.

Residents with access to the CityFibre network can now place an order with one of thirty of its consumer internet service providers, such as Vodafone or TalkTalk, to receive the faster, more reliable full-fibre internet connections.

CityFibre is racing with BT’s Openreach, Virgin Media O2, which recently combined in an £31 billion deal, and numerous rival alternative network providers to build faster broadband networks to replace Openreach’s old, slower copper wires. The government has made upgrading the country’s broadband a key policy and has put pressure on the industry.

CityFibre has been built via acquisitions, including the £200 million purchase of TalkTalk’s Fibrenation, a fledgling fibre infrastructure company in the Yorkshire region, in January last year. The company, which was acquired for £538 million by Goldman Sachs’ West Street Infrastructure Fund and Antin Infrastructure Partners in 2018, raised £825 million in September, including new backing from Mubadala, Abu Dhabi’s state fund. In addition, its banking facilities were extended by £300 million.

CityFibre’s expansion has been underpinned by anchor tenant agreements with Vodafone, Talktalk and Zen, the internet service providers. It has 26 construction companies building in more than 60 towns and cities and claims to be the largest provider of full-fibre lines in about 25 locations. By the end of next year, it plans to be building in more than 150 locations before expanding to 285 by 2025.

Mesch said that acquisitions could accelerate CityFibre’s efforts to reach up to 14 million homes. “Virgin Media and BT are now running the narrative across everywhere that the UK’s just vying with two networks, but what they are really trying to stop is that a third big a national network emerges. I think CityFibre is now representing that third large national network based on our scale,” he said.

He added that it had formed partnerships with all the leading internet service providers except Sky, with which it had been in discussions with for eight years, and suggested that surpassing the one million homes mark could help to crystallise a deal with Sky.