Zephyr Peacock Fund II, an SME-focussed venture capital firm, has invested about Rs 22.5 crore ($4.5 million) for a 20% stake in Metro Wireless Engineering India Pvt Ltd, or Metro Telworks, a telecom services company, according to sources close to the transaction. This deal values the Ahmedabad-based company at around Rs 100 crore. The company will use the proceeds to expand its services to the Middle-East and Africa.
Kartik C. Parija, Managing Director, Zephyr Peacock India, confirmed the transaction to VCCircle but he declined to divulge any details such as valuation of the firm and Zephyr’s stake in Metro Telworks, following the deal. Parija, who led the deal, will also sit on the board of the company, it is learnt.
Mumbai-based investment bank Blend Financial Services acted as sole advisor to the deal.
Zephyr’s investment in Metro Telworks is a play on the ancillary services to the telecom industry. Metro Tel provides a variety of services such as network planning, radio & transmission planning and project management to telecom network companies. It counts Alcatel-Lucent, Reliance and Airtel as some of its clients. When operators like Airtel and Vodafone expand, they need to lay down new networks which will be done by players like Alcatel-Lucent, Nokia Siemens and Ericsson who in turn outsource the installation and network planning to companies like Metro Tel.
Explaining the rationale behind the investment, Parija says, “This is a classical play on telecom outsourcing.” Going forward, the differentiating factor for telecom operators would be their quality of service unlike pricing which is the deciding factor currently. Metro Telworks currently employs about 500 engineers and has offices in 10 cities in the country and also has operations in the Philippines, Singapore and Indonesia. The company will also benefit significantly from the 3G roll out, he added. The Indian telecom market is one of the largest and fastest growing in the world with about 550 million subscribers currently, adding 170 million subs in the last one year alone.
There are a host of fragmented players providing telecom outsourcing services across the country, which include ADA Cellular (later taken over by GTL), Mobile Com, NR Switch & Radio Services and Integrated Wire Solutions Inc.
Analysts believe that the exit options for such investments could be through an IPO or selling it to device makers who want to have presence in India.
In 2007, Intel Capital backed ADA cellular, a Malaysian based company which is into similar space like Metro got acquired by GTL International Ltd, the wholly owned international subsidiary of GTL Limited.
Zephyr Peacock, which concluded this deal in 2009, is bullish on signing more deals in 2010. It is part of Zephyr Management, which has $1.4 billion under management in funds across emerging markets.
This is the fifth investment of Zephyr Peacock, which has offices in Bangalore and New York. Its portfolio firms include Time Technoplast (a polymer products firm), WLC India (a vocational training provider), Maxop Engineering (a die-casting firm) and Miles Software (a financial services software firm). It recently exited partially from its investment in Time Technoplast in an open market transaction.