Identify
Bezeq is the incumbent and largest telecom group in
Israel and also one of the country's largest companies with over
17,000 employees.
The Group has a dominant position in fixed line telephony and
broadband access and is in the top three players in all other
telecom fields.
The Apax team identified Bezeq as the only Israeli player that
was able to offer the full suite of telecoms products, the so
called 'quadruple play'. As a government owned subsidiary, the Apax
team also saw a business that had suffered from historically poor
management and was consequently trading below its European peer
group.
In a very complicated auction process, the Apax consortium
benefited from in-depth understanding of the Israeli regulatory and
labour environment as well as deep international sector expertise
in the telecoms space. These factors ultimately made Apax Funds an
ideal investor in what, at the time, was Israel's largest private
equity investment.
In order to create a sustainable and competitive business, the
consortium realised during the due diligence process that the fixed
line business, which had been run as a government monopoly, would
need to undergo a major restructuring that would result in job
losses and the divestment of non-core assets. Prior to signing the
investment, the consortium discussed these issues with the relevant
union bodies and signed an agreement upfront to ensure that the
parties were aligned on the actions that would need to be taken to
ensure the future commercial viability of the business.
In October 2005, funds advised by Apax Partners teamed up with
Haim Saban and Mori Arkin to acquire a 30% stake in the newly
privatised enterprise. In October 2008, the consortium acquired a
further chunk of the business when it exercised a call option to
buy just over 10% of the remaining shares. In governance terms, the
consortium was able to exercise control over the business through a
controlling ownership and majority representation on the Bezeq
Board.
Support
As an under-managed, government-owned asset, one of the
first priorities of the consortium was to install a more commercial
mindset across the company.
As part of this drive, a full review of existing management
practices was undertaken, which resulted in new management being
brought in and existing managers given incentive packages that were
tied to the long-term commercial success of the business.
The consortium has also invested heavily in improved
infrastructure so Bezeq now has one of the most sophisticated
networks worldwide. By investing heavily in improving the network,
the consortium has positioned Bezeq to compete in an increasingly
converged communications market and provided the platform for the
business's future success.
As mentioned above, the Apax consortium had pre-identified a
major restructuring in the wireline business and, over the course
of its ownership, this business has been transformed from an
out-moded regionally focused business to a more unified and
functional structure, that is more in keeping with best practice in
other modern telcos. Apax's ability to support the unions and
articulate the need to adapt the structure of the business to an
era of post-market liberalisation, were crucial to being able to
reach an agreement and the business now runs in a much more
efficient way.
Finally, the consortium has worked with management to build an
investor relations programme to enhance future stock liquidity and
investor awareness of the business.
realise
In 2010 the Consortium successfully sold down its entire
shareholding in Bezeq via successive placements of shares on the
Israeli stock exchange.
In April 2010, the Consortium completed the sale of 30.44% of
its shareholding to B Communications, a subsidiary of Eurocom
Communications, a major Israeli investment group.
The sale came as the final step of a realisation process that
began with a placement of 9.2% of Bezeq shares in the public
markets during the period from August to September 2009.
The successful investment in Bezeq shows how private equity
funds can combine with excellent management and industrial partners
to release the full potential of undermanaged businesses.