Formed in March 2015 by Virgin Media’s ex-finance director Eamonn O’Hare, Zegona proposes to have a “buy-fix-sell strategy”.
O’Hare stated at the time of launch that the investment vehicle would target businesses with enterprise values of between £1-3 billion, but will initially start with a relatively small placing of £30 million. He also said at the time that the company would only buy one business at a time.
By June of 2015, Zegona had already made its first splash in the European M&A bunfight, agreeing to purchase Spanish broadband provider Telecable de Asturias for €640 million.
“Telecable fits the bill in terms of our reasons for launching Zegona as it is a strategically strong business with considerable opportunity for top line growth and returns. It is also a regional champion underpinned by an extensive high speed fibre network. Our intention is to fully utilise the power of this network in order to differentiate ourselves and offer great value to customers,” O’hare explained at the time.
The transaction was funded with a combination of €251 million of new equity raised from institutional investors, a debt-facility managed by Goldman Sachs and the proceeds from its IPO.
Zegona floated on the London stock market in March 2015 at around 144p per share, but when trading was suspended on Friday it was trading at 30.4p.
This gives Zegona a market cap of £1.93 million. In contrast, valuations of Vodafone’s Spanish business unit have ranged from £3.9 billion to £7.5billion while speculation of a sell off has been suggested.
The acquisition of Telecable was completed in August 2015, and the business was sold for $770 million to Euskaltel in 2017.
As part of the deal, Zegona received a 15% stake in Euskaltel, a broadband, fixed line and digital television provider for the Basque Country, Galicia and Asturias regions of Spain.
By early 2019, the stake had increased to 21% and by June Zegona initiated a "major change program".
Zegona acknowledged that Euskaltel was running as a regional cable and fibre operator but with a utility-like culture that had failed to integrate its recent acquisitions. This had led to declining customer numbers, revenues and profitability.
Between June 2019 and March 2021 three core principals helped transform the business, resulting in a March 2021 takeover bid from Spain’s fourth largest MNO MasMovil. Zegona said the bid valued Euskaltel at €3.5billion.
According to a case study on its website, Zegona stripped the management team and board, naming a new CEO with experience from Jazztel, a new chairman and new CFO and senior managers.
It also unlocked cost-savings through implementing one operating platform for Euskaltel’s three regional brands, digitised processes and the launch of online sales. This approach delivered targeted annual cost savings of €40m against a €190m operating cash flow.
Finally, Zegona claim to have implemented a national expansion plan, which increased addressable premises from 2.5 million to over 20 million.
In June 2021, the bid from MasMovil was approved. Zegona claim that it delivered 80% total shareholder return and a 64% share price increase from the Euskaltel and Telecable Investment.
Other than its history with Euskaltel and Telecable, Zegona has been linked to other deals in the Spanish market before.
When Telia sold its Spanish Operator Yogio to MasMovile in 2016, it was reported Zegona had been in the running, despite O’Hare’s commitment to buy one company at a time.
With two years since the close of the Euskaltel sale, Zegona could be in a better position to focus its attention on Vodafone Spain.
Reports first started circulating that the business was for sale in June, when local news outlet Expansion said sources told it that Vodafone were working with advisors including Morgan Stanley on a potential deal, and was in conversations with more established funds including Apollo Global Management and Apax Partners.
Reporting back in June suggested Vodafone’s Spain unit was valued at around €4 billion, or €1 billion less than what Zegona is preparing to pay.
That being said, back in 2021 Vodafone were involved in merger talks of their own with MasMovil, with the business being valued at €7.5 billion.
Zegona is reportedly still looking for financing for the deal, and could take anywhere from 50% to 100% of the company.
