Private equity firms have set their sights on Europe's telecom industry, with KPN being a top target. The recent 33 billion euro bid by KKR for Telecom Italia has highlighted the appetite of buyout firms for former phone monopolies in the continent. Despite rejecting previous advances, the 12 billion euro Dutch group remains an attractive prospect.

The telecom industry in Europe has experienced significant volatility in the past 18 months. Stock market valuations have suffered as investors become wary of the substantial investment required for fiber-optic and 5G networks, which offer distant financial returns. Private equity buyers have recognized an opportunity and there have been numerous buyouts or attempted buyouts, culminating in KKR's proposal to acquire Telecom Italia.

Buyers are particularly interested in telecom operators' fixed-line broadband networks, especially when upgraded to high-speed fiber-optic cable. These assets are highly valued, as demonstrated by Franco-Israeli tycoon Patrick Drahi's sale of Altice Portugal's full-fiber network at a valuation of 20 times EBITDA in 2019.

Former state monopolies, with their extensive networks and depressed valuations, are particularly attractive to buyers. For example, Telefonica could be acquired for 5 times EBITDA, including net debt, even with a 30% premium to the current share price. However, the total outlay of 63 billion euros makes it too large for private equity raiders, even with approval from Madrid. Similarly, Britain's BT, valued at 39 billion pounds, is likely too large for a straightforward buyout.

Deutsche Telekom, France's Orange, and Swisscom are off-limits due to their significant government shareholders. The same applies to Belgium's Proximus, Sweden's Telia, and Norway's Telenor. This leaves KPN as an attractive option. A 30% premium offer would cost a manageable 21 billion euros, including debt. Moreover, KPN's broadband rollout is well-advanced, with plans to cover 55% of the Netherlands with high-speed connections by 2023. While KPN has previously rejected offers from KKR and an EQT-led consortium, the government in The Hague could intervene. However, given Rome's positive response to a Telecom Italia takeover, it wouldn't be surprising if private equity firms target KPN again.

Overall, private equity's interest in European telecom targets continues to grow, with KPN being a prime candidate. The industry's turbulent stock market valuations and the appeal of fixed-line broadband networks have fueled the appetite for buyouts. While some major players are off-limits due to government shareholders, KPN presents an attractive opportunity due to its manageable size and advanced broadband rollout. With the possibility of further offers, the telecom sector in Europe is likely to see continued activity in the coming months.