Is Spark New Zealand Ltd set to buy Vocus Group Ltd’s NZ business?

Shares in embattled internet-services Vocus Group Ltd (ASX: VOC) are up 3 per cent to $3.06 today and 29% over the last month after the company recently revealed plans to sell its New Zealand operations.

Vocus owns the popular Slingshot, CallPlus and Orcon home or business internet brands in New Zealand, with the combined NZ group delivering EBITDA of $57.5 million over financial year 2017. It’s also been growing at a healthy rate thanks to new market share wins of fibre-to-the-home connections across New Zealand’s equivalent of the national broadband network.

As such analysts have suggested the New Zealand business could fetch around $400 million on an EBITDA multiple of around 7x with established New Zealand telco provider Spark New Zealand Ltd (ASX: SPK) mooted as a potential buyer.

Spark New Zealand posted EBITDA of NZ$1.016b on revenues of NZ$3.6 billion in FY 2017 and could easily fund a deal for Vocus NZ with a mixture of cash, debt, or an equity raising.

Regulatory approval may be a resolvable issue for Spark given the number of new players in the NZ already fragmented internet services market.

Other mooted potential buyers of Vocus NZ include Vodafone or even Telstra Corporation Ltd (ASX: TLS) if it is able to obtain relevant legal approvals.

Otherwise the group could find a private equity or overseas bidder, with Vocus’s management increasingly keen to pay down its debt pile with some restructure moves straight out of the private equity playbook.

The Vocus share price has been rising ever since the asset sale plans were announced, with Hong Kong-based institutional investor Janchor Partners upping its stake in the business to 7.71% as at October 27.

Janchor recently made its mark in Australia by taking a significant stake in Bellamy’s Australia Ltd (ASX: BAL) just before its shares caught a serious updraft over the second half of 2017.

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Motley Fool contributor Tom Richardson owns shares of Vocus Communications Limited.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia owns shares of Vocus Communications Limited and Telstra.  We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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