Information on the Target

DNS:Net Internet Service GmbH (DNS:Net), established in Berlin in 1998, is a rapidly growing provider of fibre-optic internet connections, delivering telecommunications and internet services to both private and business customers. The company operates proprietary and leased fibre-optic network infrastructures to offer comprehensive data centre services and has made significant investments in broadband expansions primarily in the thriving regions surrounding Berlin since 2010.

Today, DNS:Net stands as the second-largest provider of VDSL connections in Brandenburg and has emerged as a leader in connecting newly-built residential properties in Berlin. The company has recently initiated an expansion of its fibre-to-the-home (FttH) connectivity, currently providing internet, telephone, and TV services to over 160,000 households, with this number increasing weekly. With its substantial growth, the workforce has expanded from 30 employees in 2012 to approximately 220 employees currently.

Industry Overview in Germany

The telecommunications industry in Germany has witnessed significant advancements and investments, particularly in broadband infrastructure. The demand for high-speed internet connections has surged, largely driven by the increasing reliance on digital services across various sectors. This surge presents opportunities for telecommunication companies to cater to the growing consumer needs for internet connectivity and related services.

Germany's strategic position in Europe facilitates its role as a hub for digital infrastructure, attracting both domestic and foreign investors. The government's focus on enhancing broadband access under the Digital Strategy 2025 aims to strengthen the digital economy and ensure equitable access across rural and urban areas. As a result, substantial investments in fibre-optic networks and infrastructure upgrades are ongoing.

Moreover, competition is intensifying among telecommunication providers, leading to innovation and improved customer offerings. Companies like DNS:Net are leveraging investments to expand their service portfolios and increase market reach, thereby capitalizing on the burgeoning demand for advanced telecommunications services.

The steady growth of the telecommunications sector in Germany is bolstered by technological advancements, with providers adopting newer technologies to enhance service delivery. The trend towards home connectivity solutions and remote work arrangements continues to fuel the industry's expansion further.

The Rationale Behind the Deal

Deutsche Beteiligungs AG (DBAG) successfully concluded its investment in DNS:Net by divesting the company to 3i Infrastructure plc, which is recognized for investing in mid-market economic infrastructure, particularly in developed markets like the UK and Europe. The decision to sell comes at a beneficial time, with the transaction expected to yield significant financial returns that exceed the fair value of DBAG's interest in DNS:Net as reported in the latest quarterly financial statements.

The transaction is projected to enhance DBAG's net income from investment activity by approximately 11 million euros in the second quarter of the 2020/2021 financial year, indicating a strategic move to realize gains from a successful investment period. The proceeds from this sale are expected to bolster DBAG's capital, further leveraging future investment opportunities.

Information About the Investor

Deutsche Beteiligungs AG (DBAG) is a prominent investment firm based in Frankfurt, specializing in private equity management. Established to support mid-sized family businesses, DBAG has played a crucial role in the growth and development of its portfolio companies. With a focus on long-term partnerships, DBAG provides not only financial investment but also strategic guidance through advisory roles.

Since launching its fund, DBAG Expansion Capital Fund (DBAG ECF) in 2011, the firm has effectively managed the fund's portfolio of mid-sized enterprises. With a strategic approach to growth financing, DBAG has supported multiple businesses, enabling substantial growth and expansion. DNS:Net's successful exit is indicative of DBAG's consistent delivery of value and commitment to fostering innovation and business development.

View of Dealert

The transaction between DBAG and DNS:Net signals a culmination of strategic foresight and successful operational growth within the telecommunications sector. The exit provides DBAG with a strong return on investment while facilitating the continuation of DNS:Net's trajectory within the market. From an investment perspective, this deal is deemed beneficial, reflecting the firm’s ability to accustom its growth strategy effectively.

Furthermore, the substantial increase in the net income and the advantageous positioning in the telecommunications sector suggest that the sale was executed at an opportune time, maximizing potential returns. The clout of DNS:Net in the regional market and its robust infrastructure lay a solid foundation for future growth under new ownership.

Additionally, DNS:Net’s commitment to enhancing its service offerings amidst a rapidly evolving digital landscape places it in a favorable position. This acquisition aligns with the interests of 3i Infrastructure plc, which aims to expand its portfolio in mid-market infrastructure, indicating a strategic fit that could enhance the value proposition for DNS:Net moving forward.

Overall, this transaction is construed as a positive outcome for both DBAG and DNS:Net, highlighting the firm’s adeptness in recognizing and capitalizing on market growth opportunities while supporting its portfolio companies through their developmental phases.

View Original Article