The Vocus Group Ltd (ASX: VOC) share price is up 3% to $3.17 today on the back of reports in the Australian Financial Review that the internet services business wants "north of $500 million" for its New Zealand internet business.
Since the group revealed at its October AGM business update that its NZ business was officially up for sale speculation has been rife as to what sort of price it could achieve if it were to attract an interested bidder or two.
It seems Vocus expects to achieve a multiple of 9-10x FY 2017's EBITDA of $57.5 million for an NZ business that still has substantial growth opportunities in the corporate, retail and government internet services space thanks to ballooning demand for data and cloud services.
These kinds of EBITDA multiples seem reasonable given the underlying growth rates and sector comparisons.
In New Zealand, Vocus possesses an extensive dark fibre network providing secure internet connectivity to its corporate clients, while it also owns the popular Orcon and Slingshot home internet brands.
Vocus has reportedly hired Goldman Sachs and Credit Suisse to sound out potential buyers of the business with overseas private equity groups touted as the most likely candidates.
Other possible buyers include rivals in the telco space such as Vodafone NZ, Spark New Zealand Ltd (ASX: SPK) or even Telstra Corporation Ltd (ASX: TLS), if any of them are able to negotiate relevant regulatory or legal hurdles.
Telstra in particular is in search of growth opportunities. It also has the balance sheet firepower and a small presence in New Zealand currently, which means regulatory hurdles should not be an issue.
Vocus's net debt load stood at $1.03 billion as at June 30 2017 and if it's able to wipe almost half of that out at a stroke the share price is likely to move higher as net financing costs fall and the business gains the breathing space for upcoming capital expenditure commitments around its Australia Singapore Cable due for completion in July 2018.
The downside would be the $57.5 million in lost EBITDA from the NZ business, although investors are likely to overlook that due to the substantial de-risking of the business and prospect of the return to healthy dividend payouts.
