CityFibre girds its M&A loins as it secures £2.3bn in funding

• Major UK altnet CityFibre has long-term ambitions to rival BT’s Openreach in the wholesale fibre access market
• It had been seeking new funding to fuel its network construction and M&A ambitions 
• Now it has agreed nearly £2.3bn in new debt facilities and equity funding that will ‘supercharge’ its ‘next phase of growth’

Any doubts that CityFibre might not have the financial firepower to execute its planned M&A-fuelled growth have been dispelled with the news that the major UK altnet has agreed new financing worth almost £2.3bn. 

Speculation about the future of CityFibre, a major rival to BT Group’s Openreach division, has been rife in recent months, with the operator having to deny rumours that it might even be sold by its main investors.

Now, though, it has announced £500m of new equity funding from a group of key existing shareholders – Infrastructure at Goldman Sachs Alternatives, Antin Infrastructure Partners, Mubadala Investment Company and Interogo Holding – that signals their “continued commitment to CityFibre’s long-term strategy”. 

In addition, CityFibre has agreed a £960m expansion of its existing debt facilities from multiple banks (ABN AMRO, BBVA, Crédit Agricole CIB, ING, Intesa Sanpaolo IMI CIB, Lloyds, the National Wealth Fund, NatWest, SEB and Société Générale) that will “support CityFibre’s continued network investment and enable it to rapidly connect hundreds of thousands of new customers across its nationwide network”, the operator noted in this announcement. Those investments are believed to be mainly linked to CityFibre’s Project Gigabit commitments in rural and other hard-to-reach areas – see CityFibre dominates latest UK Project Gigabit contract awards.

CityFibre’s fibre-to-the-premises (FTTP) lines, which are used by internet service providers (ISPs) such as Sky, Vodafone and TalkTalk, currently reach 4.5 million UK premises, more than half way to its target of 8 million. CityFibre currently has more than 620,000 lines under contract to its ISP customers. 

But the wholesale fibre access infrastructure operator’s growth strategy isn’t just about additional network construction, as CityFibre is now looking to acquire the assets of smaller UK fibre altnets to accelerate its expansion, and with many of the UK’s dozens of independent FTTP infrastructure players struggling financially, there are some good deals to be had. 

This year, CityFibre has already announced the acquisition, for an undisclosed sum, of network infrastructure assets from Connexin, which expanded CityFibre’s potential footprint by 185,000 premises in the city of Hull and surrounding East Riding area of Yorkshire – see CityFibre kickstarts M&A-fuelled growth spurt.

While CityFibre has acquired other UK altnets before – it bought Lit Fibre last year, for example – the operator is set to ramp up its M&A activity in order to snap up the most suitable available assets, especially as it’s likely to be competing with joint venture wholesale operator Nexfibre to secure the best deals.      

According to the investment analyst team at New Street Research, CityFibre has been in exclusive takeover talks with a number of other altnets that would add hundreds of thousands more UK premises to its fibre network footprint. 

To help with those M&A ambitions, CityFibre has agreed an “accordion facility” (an agreed option to increase the size of loans) worth £800m that can be used “to finance the company’s M&A pipeline and cement its position as the sector consolidator.”

Greg Mesch, who has been CEO at CityFibre since he founded the company in 2011, stated: “This round of financing will supercharge CityFibre’s next phase of growth, as we consolidate the altnet sector, accelerate the pace of customer connections and unleash the full power of our market-leading 10Gb XGS-PON network for the benefit of all our partners, their customers and for the UK economy. There is [a] huge opportunity ahead for CityFibre and it is testament to the success of the company that we have such strong backing from our lenders and shareholders. This multibillion-pound investment into critical digital infrastructure will deliver significant benefits across the UK, helping to realise potential and unlocking economic growth.”

CityFibre’s previous funding rounds were secured in 2022, when it agreed debt financing worth £4.9bn, announced in June of that year, and £300m in equity financing from Mubadala Investment Company, announced in March that year.

To date, CityFibre has raised about £3bn in equity financing and about £5bn in debt financing (plus the £800m accordion facility). 

What's next?

With the new funding agreed, CEO Mesch’s focus will now be on securing additional strategic M&A deals to add fibre infrastructure assets in areas where the company is not already active. CityFibre declined to comment on a timeline for further deals but a spokesman told TelecomTV that the company is in “very well-established negotiations with multiple players and working to move quickly in order to give our [ISP customer] partners as big a footprint as possible”.

Mesch will also be looking to boost the operator’s sales and margins – earlier this year it reported full year revenues for 2024 of £134m, up by 34% year on year, and adjusted earnings before interest, taxes, depreciation and amortisation (EBITDA) of £5m compared with a £55m loss in 2023.  

But, as you’d expect, it faces multiple challenges to do so. It has a couple of fierce rivals in the UK wholesale FTTP sector in the form of Openreach, which already passes more than 18 million premises with its wholesale access fibre network and is on course to reach 25 million premises by the end of 2026, and Nexfibre (a joint venture between InfraVia Capital Partners and Virgin Media O2’s owners, Liberty Global and Telefónica), which currently passes more than 2.2 million premises and is on course to reach 5 million by next year. It is also likely to face competition for the best M&A opportunities from Nexfibre and Netomnia, with Netomnia having already engaged in some M&A activity and being on course to reach 3 million premises (and be profitable) this year. 

Another major challenge is that one of its main customers, national broadband service provider TalkTalk, is in major financial difficulties and is engaged with financial advisors about a rescue package or sale (it has even been linked to a potential takeover by BT, though that kind of deal would be very problematic from a competition perspective). CityFibre needs TalkTalk to be solvent and thriving to help it achieve its financial goals, and right now that’s looking tricky. 

- Ray Le Maistre, Editorial Director, TelecomTV