Telus Corp. could unlock significant value by taking its international unit public, analysts said Thursday after the Canadian telecom company announced it has struck a deal to acquire a German content moderator.
On Wednesday, Telus said it plans to buy Berlin-based Competence Call Center for $1.3-billion in debt and equity as it looks to beef up its information technology, outsourcing and call-centre division ahead of a planned initial public offering.
The acquisition helps Telus International expand into the rapidly growing content-moderation business, which involves monitoring websites, forums and social-media platforms on behalf of corporate clients and removing hateful messages or other unseemly content.
It also “adds size and scale that will help pave the way” for an IPO in the next 12 to 24 months, Scotia Capital analyst Jeff Fan said in a note to clients.
Telus Corp. owns about 65 per cent of Telus International, after selling a 35-per-cent stake in the business to Baring Private Equity Asia for $600-million in May, 2016. The sale put Telus International in a position to fund its own growth without straining Telus’s balance sheet said Citi analyst Adam Ilkowitz.
The following year, Telus International acquired an Ireland-based customer, a technical and sales-support operation called Voxpro, as well as California-based information-technology consulting firm Xavient Information Systems.
The acquisition of Xavient, which at the time of the purchase had a headcount of 1,800 in the United States and India, moved Telus International, previously an outsourcing and call centre operation, into the IT consulting business.
If the acquisition of Competence Call Center closes – it’s subject to regulatory approvals, particularly in Europe – it will add 8,500 employees in 11 European countries, bringing Telus International’s headcount to 50,000 and its annual revenues to roughly $1.75-billion.
Expanding Telus International into a multibillion-dollar business is one of Telus CEO Darren Entwistle’s chief objectives. An IPO would fuel that growth by giving the business its own valuation, helping to provide capital for future acquisitions, Telus International’s president and CEO Jeffrey Puritt said. But the offering will depend on factors such as market conditions and the unit’s performance at the time, Mr. Puritt added.
Desjardins analyst Maher Yaghi said he estimates that Telus International could be worth between 11 and 13 times its earnings before interest, tax, depreciation and amortization, whereas Telus’s wireline business – which includes, internet, phone and Internet Protocol television (IPTV) – is trading at seven to eight times.
“In addition to the potential to unlock significant value through the public listing of [Telus International], this has the potential to create significant shareholder value,” Mr. Yaghi said in a note to clients.
Valued as a separate entity, the international unit could be worth as much as $5.3-billion, unlocking $1 to $1.50 a share for Telus’s shareholders, Mr. Yaghi wrote.
“We continue to believe that [Telus International] is a hidden gem within the Telus organization.”
Telus is likely to maintain an ownership stake in Telus International after the IPO, as it uses the unit to serve its own customers, according to Canaccord Genuity analyst Aravinda Galappatthige.
After the acquisition of Competence Call Center, the Vancouver-based telecom provider’s stake in Telus International would fall to 62 per cent. Senior management of CCC and Baring Private Equity Asia are partnering with Telus on the deal.
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