M2 hunting for a takeover following TPG’s iiNet deal

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M2 hunting for a takeover following TPG’s iiNet deal

Where to now for Australia's broadband number four?

M2 Group chief executive Geoff Horth is on the prowl for potential acquisitions in both the telco and energy markets in the wake of TPG’s approved takeover of iiNet.

The deal, described as “bittersweet” by iiNet founder Michael Malone, will see Optus, Telstra and TPG/iiNet claim a combined total of around 80 percent of the Australian broadband retail market.

M2 had attempted to swoop in and steal iiNet out from under TPG, but its efforts were ultimately unsuccessful after the iiNet board decided to throw its support behind TPG's second offer.

The TPG/iiNet takeover puts M2 a lagging fourth behind the three major broadband players.

But according to Horth, the race to the top is far from over.

“The ACCC has made a point that that the four majors couldn’t combine, and that rules out a deal where Telstra, Optus or TPG is the other party. But there are still interesting combinations out there,” Horth told iTnews.

“There are opportunities for good, organic growth and there are interesting combinations in New Zealand and Australia. And that’s not just in telco – that’s in the energy as well.

“So we don’t think the race is run by any stretch.”

Horth said M2 wouldn't be waiting for "pieces of paper to cross our desks".

"We have a very active [mergers and acquisitions] mandate, and a lot of that is driven by building personal relationships," Horth said.

“We bought CallPlus and Dodo in exclusive negotiations. In both cases, they were deals the market wasn’t expecting.”

In an increasingly concentrated market, M2 is also looking to draw on its ability to bundle broadband and utility services as a means of growing organically.

“Even being fourth, we have 2 million services across Australia and New Zealand, $100 million in underlying profit and $1 billion in revenues. It’s a big market, and we’re big enough to compete given our business portfolio,” Horth said.

“We have a brand with a similar proposition [to iiNet] in iPrimus. It’s not been as prominent as iiNet in recent years, but it’s a very similar brand promise.

“But we’re not assuming there will be many disaffected [iiNet] customers [jumping ship]. You don’t get to be as big as TPG in terms of earnings by losing customers, and we expect them to do well out of the [[iiNet] deal.”

Another key focus for M2 over the coming years will be growing its share of its wholesale market.

“The other big players have around 81 percent of the market. We have 6 percent or 7 percent. And then there’s another 8 percent to 10 percent that can’t afford to build out to 121 [NBN points of interconnect].

“So we’re interested in being their aggregator.”

He said a significant proportion of M2’s capital is tied up in fixed assets, such as backhaul or PoIs, meaning additional wholesale growth could create extra economies of scale for the company.

“A big player wouldn’t want to cannibalise their retail marketshare. For us, we would say ‘yes’ because it would allow us to add an extra 100,000 or 200,000 customers to our network,” he said.

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