IMM to support T-Broad in cable TV battle

Cable TV in the country is geographically fragmented, with 77 broadcasting regions. Each region may have one or several operators. In December 2008, the broadcasting law was amended, allowing one cable TV operator to broadcast in maximum of 25 regions, up from the original of 15. The regulator is currently assessing whether or not to open up the entire IPTV market to cable TV operators.

"Cable operators can only target one third of the subscriber base at present, but if these new regulations come in this will increase to one third of the overall pay TV market, which includes IPTV," says Joseph Lee, partner and senior managing director at IMM. "It will more than double the target subscriber base for some of cable companies in Korea."

IPTV services were first launched in 2009 and subscriber numbers reached 6 million in 2012 as consumers became more willing to pay for digital media services, according to Korean Digital Media Industry Association.

The upcoming rule change is expected to trigger an aggressive acquisition spree by large multi-system operators (MSOs) as they look to scale up their business and boost market share. T-Broad Holdings is one of the three largest MSOs, alongside C&M and CJ Hellovision. It currently has 3.5 million cable TV subscribers in around 21 regions and generated revenues in the region of $750 million last year.

Korean conglomerate Taekwang Group, which owns T-Broad Holdings, decided that a private equity firm would be a useful partner in sourcing M&A opportunities. This led to the IMM last week buying a 21% stake in T-Broad for for KRW200 billion ($190 million), becoming the second-largest shareholder in the company.

The deal was structured as two tranches - KRW100 billion in common stocks and KRW100 billion in convertible preferred shares, which valued the company at price-two-earnings (P/E) ratios of less than 10x.

In addition to M&A opportunities, IMM is eyeing the transition from analog to digital broadcasting services provides, which is expected to push up MSOs' subscription revenues rise. "Once digitalization happens, customers can purchase video-on-demand content and other premium services. That's another growth potential," Lee adds.

The logical exit is an IPO. CJ Hellovision, the largest player in the market, went public in late 2012, raising $267 million and currently trades at a 16x P/E ratio. T-Broad is expected to follow suit within four years at a similar valuation.

This is the sixth deal from IMM Rose Gold Private Equity Fund II, which closed at KRW756 billion in December 2012 and is now more than 60% deployed. "We're looking to return to the fundraising market in the second half of this year," Lee adds.

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• Topics
• Expansion
• North Asia
• Media
• Regulation
• IMM Investment
• South Korea
• Growth capital
• M&A
• Media
• regulation