Sounds like the start of a bad joke I know, but I read with interest the possible Virgin Media interest in buying Trooli, the Kent based company set up to expand the fibre broadband network to rural and semi-rural areas of Kent.
The number of new entrants to this market has been significant over the past couple of years and substantial funds raised from some big names in the private equity space in the race to gain market share. The Government support to expanding the coverage of the nation's fibre broadband network remains firm with Project Gigabit providing £5bn of support to companies competing to increase the number of homes receiving high speed fibre broadband services.
At FRP we have been looking at this sector in detail and whilst there has been significant capital raised by firms competing with the likes of Openreach, Virgin Media and Cityfibre the liquidity pressure appear substantial. Inflationary pressures will have increased build costs for the operators in this market and partnerships with construction firms may have longer working capital cycles than originally expected given the increased costs faced by housebuilders and potential slowdown in new builds. Couple rising costs with the fierce competition faced and downward pressure on pricing and this all indicates a liquidity crunch could be approaching for a number of these firms, particularly if new rounds of fund raising are not forthcoming.
If this sector is now overcrowded and liquidity is becoming tighter this poses the question of how much longer does some of the promised funding remain in place? Will some of the funds involved take a 'last person standing' approach and seek to see off the competition? Or are we about to enter a period of consolidation in this market?
We will continue to follow this space and what happens with Trooli with interest and if anyone is interested in discussing this sector in more detail please do not hesitate to get in touch with myself (Simon.Stibbons@frpadvisory.com) or Al Massey (Alastair.Massey@frpadvisory.com).