Vero-Americanet merger opens new chapter in market consolidation

The announced merger between Vero Internet and Americanet, two of Brazil’s largest internet service providers, starts a new stage in the consolidation of ISPs: the combination of tier 1 firms.

This stage was anticipated by the market and is now taking shape with the emergence of the potentially largest fiber provider in Brazil.

Vero, which is controlled by Vinci Partners fund, will have 56% of the capital in the new company and Americanet 44%. The new company will have 3,500 employees and presence in 450 localities.

Considering the merging companies’ bases, the new one will have 1.4mn subscribers and 1.9mn revenue generating units (including fixed, mobile and pay-TV services subscriptions). 

According to these figures, the company would be the largest internet provider in Brazil in terms of RGUs and the fourth largest fiber broadband player, behind Telefônica and Oi and on par with leading ISP Alloha, which operated 1.47mn fiber accesses as of May.

“We estimate 150-200mn reais [US$31mn-41mn] of annual cash flow as synergy [from the merger]. This starts to be obtained in 2025, fundamentally, a little in 2024, and accelerates over time until we reach a number very close to 250mn reais in annual synergies,” Vero CEO Fabiano Ferreira told a press conference in response to a question from BNamericas.

According to Ferreira, the companies mapped “excellent” synergy opportunities in terms of top-line, cross-selling, complementary revenues, cost of revenues, opex and even capex, through economies of scale.

Ferreira will be the CEO of the new company and Lincoln Oliveira, head of Americanet, the chairman. Merger plans started to take shape last year, in a conversation between the two executives at an event hosted by manufacturer Intelbras.

Little network overlap and geographical presence, complementary portfolios (Americanet is strong in B2B), in addition to inorganic (M&A) growth characteristics of both companies were the main points in favor of a combination, according to Oliveira.

Together, Vero and Americanet have to date completed 48 M&As. 

The combined group will be particularly strong in the south, southeast and midwest, but the executives have national ambitions. They want to enter other regions, either organically, via M&As or using a neutral fiber network. Vero is already a customer of FiBrasil.

According to the executives, the new company has the best metrics in Ebitda and profitability in the sector. “We are creating here the biggest ISP in revenue terms,” said Oliveira, alluding to 2022 revenues of 1.3bn reais and Ebitda of 700mn reais.

CONSOLIDATION AMONG BIG PLAYERS

The merger is driven by increasingly fierce competition, intensive need for capex and the slowdown in acquiring new fiber clients.

Over 15,000 ISPs are registered with regulator Anatel, and in some cases, 17 ISPs provide services and compete in one city.

From many perspectives, the merger of large ISPs is therefore a defensive move.

As such, Americanet-Vero is open not only to acquiring smaller providers but also considers merger opportunities with larger ISPs, Ferreira said.

Among those would be Alloha, Brisanet, or even Desktop.

“In this market, we are buyers, not sellers,” Alloha CFO, Felipe Matsunaga, told BNamericas last month when asked about M&As.

At Desktop, acquisitions remain on the radar, but the company has been more careful in assessing these moves lately.

In Q1, Desktop concluded the acquisition of 70% of Fasternet, its 10th acquisition and the second largest in terms of number of subscribers. In December, the company wrapped up the purchase of ISP IDC Telecom for 90mn reais.

Meanwhile, the acquisition of smaller ISPs continues apace.

This week, Unifique completed the acquisition of Santa Catarina-based Naxi for 35mn reais. The acquisition was Unifique’s fourth in 2023.

"The telecom business is very capital intensive. We tried an IPO window in 2021, it failed, we gave up. We understand that this is heating up again, follow-ons are already happening. [IPO] is an option, but we don't count it as plan A," Ferreira said.

Among other options for funding the operations are, in addition to cash flow synergies, a new debentures issuance, although costs and interests are an obstacle. Vero has 1.1bn reais in approved debentures, of which it has used around 375mn reais.

The companies also do not rule out the entry of a new partner, in addition to their existing investors. “A new investment partner can contribute capital and grow our business. Our current shareholders have opportunities and capabilities, but we look further into that,” said Ferreira.

NEXT STEPS

Ferreira and Oliveira expect analysis of the merger at antitrust watchdog Cade and at Anatel to take three to six months. Due to the low overlap of assets, they do not expect major obstacles to the approval of the deal.

Vero is being assisted in the transaction by Banco Itaú BBA (exclusive financial adviser) and by Lefosse Advogados. Americanet is being advised by UBS BB and Machado Meyer Advogados.

The companies plan to announce shortly the hiring of a specialized consultancy to assist in the integration. That same consultancy will help define if a new brand will be created or if the combined company will keep one of the existing brands, Oliveira said.