Technology is rapidly changing across Europe, led by Sweden, which will be the first country to switch off analogue TV in 2008.
In one room is the satellite television showcasing the latest MTV music videos or Champions League football. In another is the terrestrial TV that has a limited range of programmes. Families the world over know this scenario all too well. The discussions and arguments over who gets to watch what are the same, irrespective of the language used or accent spoken.
But technology is rapidly changing across Europe, led by Sweden, which will be the first country to switch off analogue TV in 2008. Eventually, all televisions in a home will select from the full range of digital channels available, finally ending family arguments about who controls the remote control.
It was this opportunity for Boxer to become Sweden's leading digital television broadcaster that underpinned 3i's decision to invest in the company in April 2005. Boxer's business model is based on purchasing and packaging TV channels and distributing them through Sweden's digital network. Hence international channel leaders such as MTV, Discovery's Animal Planet and CNN are provided to subscribers alongside domestic channels. It is this unique blend that is Boxer's strength.
The rationale for investment was simple. Boxer has a short-term opportunity to take a dominant position in Europe's first all-digital market. Scope for its domestic growth is huge, but the experience of leading this process will give Boxer a unique opportunity to expand into other markets and launch new products. These are expected to include the distribution of TV content via mobile phones and the internet.
The genesis of the deal
Historic investments in companies such as pan-European telephone directories business Yellow Brick Road and the Pinewood Shepperton film studios, coupled with new deals such as its recent backing of Sparrowhawk Media, which broadcasts the Hallmark television channels, have consolidated 3i's position as one of Europe's leading investors in the media sector.
3i believes that the rapid changes in some areas of the media sector provide huge opportunities for those companies able to harness the technological challenges and deliver more effective services or content on behalf of clients and subscribers.
3i had identified broadcasting as a priority sub-segment in the media space. Within the European landscape, Boxer stood out as one of the most attractive platforms to participate in the growth of this area. 3i had been tracking Boxer for some time and developed a strong rapport and dialogue with its management team.
3i's investment team concluded that the Scandinavian market offers an exciting growth opportunity and that Boxer has the management capability to take a leadership position. The rationale is that Sweden has nine million people, with an average of 2.4 television sets per household. Boxer had 400,000 subscribers when the deal was closed and has a chance to attract more than 700,000 Swedes who must choose a new platform by 2008. The company is consequently well placed to almost treble in size over the coming two years.
Creative approach to the deal
The opportunity to invest came when one of Boxer's shareholders - Nordic pensions and investment group Skandia, which owned 30% - decided to sell its collection of 20 stakes in private companies. Boxer accounted for 75% of the total value of its private equity holdings.
3i recognised it needed to offer a satisfactory solution to the vendor in order to win the deal. An offer for all 20 assets was prepared and delivered. 3i had pre-negotiated a sale of the 19 other holdings in the Skandia portfolio to Four Seasons Ventures.
This approach proved crucial, as Skandia was determined to sell all the holdings in a single transaction. It is this creative approach to getting deals done which further attracted Boxer to the 3i team.
The road ahead
The business is a classic growth capital opportunity. After the first six months of 2005 Boxer had 447,000 subscribers, a 66% increase compared to 2004. During the same period Boxer had sales of €55m, an increase of 94% and EBIT of €4.5m. We expect Boxer to continue the rapid growth in its subscriber base, its yearly turnover as well as profitability in the future.
Klas Hillstrom, the 3i Partner who led the deal, says: "3i will add value to its holding through a combination of financial expertise and sector knowledge. It has nearly 500,000 subscribers now and is improving its offering all the time. It is such a public company, in terms of its profile, that it will probably be an IPO candidate one day."
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