By Kevin Xu, Cooper Thompson, Nancy Huang, Ngoc Nguyen, Oliver Chen (University of Melbourne), Douglas Dahlén, Elliot Christophers, Jens Bager, Sam Elfstöm (SSE)
Photo: Maxwell Ingham (Unsplash)
Overview of the deal
Acquirer: Vocus Group Limited (ASX:VOC)
Target: TPG Telecom Limited (ASX: TPG) fiber and transmission network; and TPG Telecom Limited’s Enterprise, Government, and Wholesale (EG&W) Customer Base
Total Transaction Size: US$3.5 Billion
Closed date: 13 February 2025
Target advisor: Bank of America (financial), Allens (legal)
Acquirer advisor: Macquarie Capital & UBS (financial)
The acquisition of TPG Telecom Limited (ASX: TPG) is strategic in nature, and aimed at improving Vocus Group Limited’s (ASX: VOC) competitiveness within the Australian Telecommunication industry. Vocus Group Limited is set to spend US$3.5 bn (A$5.25 bn) to acquire TPG Telecom Limited’s metropolitan fibre network and EG&W customer base. This acquisition will strengthen Vocus’s existing intercapital and regional fibre network to 51,000km and create a highly competitive fibre network.
Additionally, Vocus will acquire TPG’s international submarine cable, and connected buildings, which post acquisition will total to 14,700km and 19,000 respectively.
Finally, Vocus will also benefit from cost savings via synergies upon the acquisition as TPG Telecom Limited’s fibre network, and offerings will be integrated into Vocus’s existing operations.
“This agreement is transformative for Vocus and is an important step towards creating a more competitive landscape for the Australian telecommunications industry.” - Jarrod Nink, Interim Chief Executive Officer at Vocus
Company Details (Acquirer - Vocus Group)
Vocus Group Limited is a leading fiber and network solutions provider in Australia and New Zealand, operating through Vocus Network Services, Retail, and New Zealand segments. The company owns and operates a 25,000km fiber network, offering telecommunications products and services under various brands, including Vocus, Slingshot, Flip, Orcon, Dodo, iPrimus, Commander, and Engin. Vocus also supplies gas and electricity services and provides insurance products. As of June 25, 2021, Vocus Group Limited was taken private.
Founded in 2008, headquartered in Melbourne, Australia
CEO: Ellie Sweeney
Number of employees: ~1,300
Market Cap: delisted, ~$2.1 Bn (as of 25/06/2021)
EV: N/A
LTM Revenue: N/A
LTM EBITDA: N/A
LTM EV/Revenue: N/A
LTM EV/EBITDA: N/A
Recent Transactions: acquired by Macquarie Infrastructure and Aware Super for $2.2bn (Jun 2021), $440mn acquisition of Nextgen Networks (Jun 2016), $1.35bn acquisition of M2 Group (Sep 2015), $397mn acquisition of Amcom (Dec 2014)
Company Details (Target - TPG Telecom)
TPG Telecom (ASX: TPG) is a joint venture between Vodafone (LON: VOD) and CK Hutchison (HKG: 0001) and is one of the largest full-service telecom providers in Australia. TPG owns and operates a mobile network covering 23 million Australians with 85% populational 5G coverage in the 10 largest cities and regions of Australia. The group further provides 35,000 kilometres of metropolitan, inter-capital and subsea cable systems, including a subsea cable from Sydney to Guam.
TPG Telecom operates through two business segments, their consumer business and the Enterprise, Government and Wholesale business, which is being carved out by Vocus.
Founded in 1986, headquartered in Sydney, Australia
CEO: Iñaki Berroeta
Number of employees: ~3,500 (full company)
Market Cap: ~$5.4 Bn (as of 23/12/2024)
EV: ~$12.1 Bn (full company), ~$5.3 bn (EG&W)
LTM Revenue: $3.7Bn (full company), ~$0.7 Bn (EG&W)
LTM EBITDA: ~$1.1 Bn (full company), ~$0.4 Bn (EG&W)
LTM EV/Revenue: 2.2x (full company), 5.2x (EG&W)
LTM EV/EBITDA: 7.3x (full company), 9.6x (EG&W)
Projections and Assumptions
Short-Term Consequences
Vocus’ acquisition of TPG Telecom will have significant short-term effects on both companies and the broader Australian telecommunications landscape. For Vocus, the large fibre network and nearly 13,000 connected buildings obtained through the acquisition will strengthen its operational infrastructure and enhance its market position. This expanded network will enable Vocus to offer an improved range of services and capitalize on infrastructure synergies, potentially creating cost efficiencies, and extending network reach.
Through the integration of TPG’s EG&W fixed-line customers, Vocus is expected to significantly increase its customer base and revenue streams. This allows Vocus to further cement its status as a leading provider in these markets, especially when paired with the long-term network services agreement with TPG, worth $130 million annually.
TPG benefits from the cash proceeds of the deal, which are expected to be allocated towards capital management and business investments. Divesting its EG&W business also allows TPG to sharpen its focus on its core mobile and consumer services, offering the opportunity to enhance operational efficiency and market responsiveness.
It is anticipated that Vocus will integrate approximately 560 TPG employees. Transaction costs for Vocus are estimated to fall between $45m and $55m, while net separation costs are projected to range from $80m to $120 over the next three fiscal years.
Long-Term Upsides
The assets acquisition could be considered a strategic move that further strengthens Vocus’ Network Services. The Enterprise, Government and Wholesale segment, which historically has had a 2-3x higher EBITDA margin compared to the more price-sensitive Retail Segment, is thus expanded through a near doubling in terms of fibre length and tripling in terms of connected premises. Historically, two-thirds of Vocus’ fibre has been intercapital, with the remaining third being part of the metro network. With 22,000 km of the acquired 24,000 km of TPG fibre being part of the metro network, Vocus achieves a diversification in terms of assets and revenue streams.
The acquisition also has implications for the relationship between Vocus’ fibre network offerings and Starlink, the satellite network developed by SpaceX. Starlink, while slower and less reliable than fibre optic internet, offers full coverage across Australia. Consequently, undertaking investments into sparsely populated areas may offer limited economic appeal for Vocus in the long term. Instead, this acquisition strengthens Vocus’ presence in cities, where Starlink’s coverage advantage is less significant. Additionally, Vocus maintains a distribution deal with Starlink which allows it to still be present for customers outside its physical network.
Risks and Uncertainties
The transaction is currently under review by the Australian Competition and Consumer Commission (ACCC), ensuring it does not significantly harm competition in the wholesale and enterprise telecommunications markets. Regulatory challenges are heightened by the ACCC monitoring the telecommunications industry more generally, evidenced, for example, by its ongoing observation of mobile service agreements between Optus and TPG Telecom.
The ACCC’s scrutiny of this deal is similar to its decision to disallow Telstra and TPG Telecom’s proposed regional network-sharing in 2022. The ACCC decided that the agreement would reduce regional competition by cementing Telstra's dominance and disincentivising TPG's investment in its own infrastructure. This decision, later upheld by the Australian Competition Tribunal, demonstrates the willingness to intervene in competition-harming large-scale transactions, increasing uncertainty around the current deal.
Additionally, the ACCC’s recently decided to extend the regulation of the Domestic Transmission Capacity Service (DTCS) for five years, extending the period of regulatory risk for Vocus. As DTCS applies to the carved-out assets, Vocus may face constraints on pricing and usage flexibility, potentially limiting the assets’ strategic flexibility.
Operationally, TPG’s planned internal restructuring of the assets to position them within a carve-out-ready subsidiary poses short-term uncertainties. Such restructures are often complex, requiring precise execution to optimize financial and legal outcomes, potentially delaying the transaction timeline.