I would like to start with what you said right before starting the interview - that you believe in this country. Why do you believe in Bulgaria?
For a combination of reasons. First of all, what I tend to say is that we invest in companies, not in countries. However, you cannot ignore the country when you make an investment, for any sector, or for any business. Bulgaria has proven to be one of the most stable economies currently in Europe, one of Europe's fastest-growing economies. If you look at the GDP of Bulgaria, even before the Covid-19 crisis, it was growing around 3-4%, which was among Europe's highest.
Also, there are other indicators like unemployment, which at around 5% is one of the lowest in Europe, Bulgaria's corporate tax rate of about 10% is also the lowest in Europe. If you also look at the debt to GDP ratio, which is about 25% or so, this is also one of the lowest. From an economic perspective, the country seems to be on very solid ground.
In addition, we appreciate that you have a very stable political situation which helps to attract FDI. But regardless of the economy, what is very important is that we find very capable and well-educated people here. In particular, if you look at the technology sector, there are a lot of IT experts and I know that the country is proud of that - and rightly so.
We have been very impressed with the capabilities of IT experts in Bulgaria and, frankly, our plan at United Group is to use Bulgaria as a regional hub when it comes to the technology side. All in all, for us it was a great opportunity at United Group to expand our geographic reach into a European Union country whose currency is also stable because it is very much pegged to the Euro. So these are the reasons why we are here today, from a country perspective.
How do you see Bulgaria in the next 3-5 years?
If you look at the impact that Covid has had on the GDP of the country, it is expected that it will decline by about 3% this year in 2020. The general decline of GDP in the EU has been between 5-8%, so also in a pandemic year, the country has managed to defend itself very well. And I think growth will revert to the previous levels of about 3%, which is a very healthy rate.
So I am still optimistic that the fundamentals are there, and you see it from both GDP and GDP per capita perspective. Telecoms and media spending is highly correlated with GDP per capita growth, so the more people's wealth increases, the more ability they have to invest and spend on telecom services and media products, and all the other services that we offer. I remain optimistic about prospects.
I read your interview in "Forbes" and there you said that the telecom sector is kind of immune to the Covid-19 crisis. Why do you think this is the case?
It is for a combination of reasons. One, telecoms have been a very resilient sector, partially driven by its business model, which is subscription-based. For example, it is very difficult to stop using your phone, or, in the media, your TV services. Nobody will cancel their Netflix subscription in the middle of a pandemic when we are all stuck at home watching TV. I think it has proven to be a must-have product and service, and certainly, it has been proven to be the case in this time of crisis.
I think the other reason is because it is a very cash-generative sector, which, from an investor's perspective, is attractive. As a sector, it has proven its resilience; it has proven that its subscription-based nature doesn't mean that you have much volatility. It is a very stable sector and that is part of the reason why we continue to invest in it, not only in Bulgaria but across the world.
Apart from telecoms, you invest heavily in media. What is the connection between the two sectors?
We think there is a mutual relationship between telecoms and media, not only in the case of Vivacom and Nova, but overall as a sector. The way we approach this, if you look globally at the moment, there is a substantial trend of conversion between telecoms and media. You see it in the USA, like in the case of AT&T and Time Warner, or Comcast and NBC, or Comcast and Sky.
A lot of operators feel there are synergies between telecoms and media, and they are apparent all over the world. We feel that, individually, these models wouldn't be as successful as if they were together. Some people look at telecoms as just a distribution medium, just a pipe effectively. Some people look at the media as simply being content. We believe that you need to have both. And United Group has proven to be one that is both, and if you have both, you have the best of both worlds. You get the distribution ability from telecoms, and also you get the content and the production of content from the media side.
I think that to be truly successful you need as a telecom operator to have a media arm, and a media arm means content production. It means the ability to create content and in particular local content, and you are able to distribute this content more widely. The scale of both media and telecoms allows us also to increase investment in content. And in our mind, that is the beauty of having a converged media and telecom operator, which we will have in the case of Vivacom and Nova in Bulgaria.
How do you think TV will look in, say, another 5 years? There are predictions that it may even cease to exist.
I don't think that TV will cease to exist. I think it will remain a very attractive medium to broadcast. I think, however, that content delivery will happen through a variety of media. It might be digital, but it is going to be hard for TV to cease to exist altogether because watching something on the big screen is an experience for the consumer, and the audience. It is very different from watching something on your laptop, your iPhone or your iPad.
However, the TV industry will have to adapt. Even this industry continues to do so every day, but I don't personally think it will cease to exist, rather it will evolve.
What I think they meant was that linear TV will cease to exist and that distribution will be dramatically different. People will choose more than now what they want to see and not expect to receive it straight away.
I think that will be part of the evolution, but I still think it will not cease to exist. And you will see that trend happening with on-demand TV. At the same time, you should not lose sight of the fact that there is some content that is real-time where you need to have real-time distribution and viewership, such as sports. So sports is one type of content about which you cannot say, "I will see a football match two hours after it ends," because it has been broadcast, and you already know the score.
What are your plans for United Group for the next, say, three years? Will you expand in Bulgaria or the region?
First of all, if you look at the history of United Group, it has proven to be a very strong consolidator in the Southeast European region. And we certainly have proven to be a natural consolidator even before our acquisition of United Group; since its inception almost 20 years ago the group has acquired close to 100 companies. And it has managed to integrate those.
Since our acquisition almost two years ago, we have acquired four companies, two are actually in Bulgaria, one is in Croatia (the third mobile operator) and one is in Greece with the acquisition of Forthnet, which is the largest pay TV operator. We will continue to consolidate the market. Our vision is to do both geographic expansion - although I am not sure there is a lot for us left to acquire geographically in the region - but certainly to do more in-market consolidation. I think we will continue looking out for acquisitions on the markets where we already have a presence, and that includes Bulgaria. So I expect us to continue to look for add-on acquisitions in Bulgaria.
What is the exit strategy for United Group and for you as BC Partners?
For United Group the most likely exit strategy is going to be an IPO in a European stock market, which means that United Group would ultimately always be a strategic investor in every country it operates, for every company that it owns.
I do believe that the ultimate owner most likely would be the public markets, so it will be institutional but also individual investors who would like to have exposure in the leading telecoms and media company in the region. And that is the way we are approaching all our acquisitions.
We do it, knowing that United Group, regardless of who the next potential owner of United Group is going to be, is always going to be a strategic shareholder of whatever company it owns. United Group will always be the owner of Vivacom, of Nova, regardless of who will ultimately end up owning United Group.
United Group concentrated many media assets here in Bulgaria and this creates a lot of concerns because I believe there has never been a major concentration of different media here in Bulgaria. So a lot of people expect to be reassured that the journalistic core of this media will remain, or become, free or independent from the government. What kinds of guarantees can you give for this?
If you look at what we have done in other markets where we've acquired media, either in European markets or outside, we have proved that we have adhered to the highest standards of corporate behavior. This applies to both United Group and BC Partners ultimately. Our investors are among the biggest and most respected institutions in the world, so they expect us to operate to those highest standards.
Now, when you look at United Group and its media arm in particular, which is United Media, it also operates under the highest standards of independent journalism. United Media news outlets ultimately operate with full autonomy, and the company has editorial policies that we have put in place to make sure they protect the independence of the journalists. And that is absolutely key; it is the biggest sensitivity that anyone could have - that journalists continue to be able to do what they are supposed to do, which is adhering to freedom of speech and independent journalism.
United Media has created an editorial board in Luxembourg and monitors all our media. It verifies that journalists are investigating properly and impartially any news that they cover. For us, this is the best way to safeguard the independence of what journalists are doing. So, we have an independent editorial board based outside of the countries we operate in, in an independent country itself, with independent board members that are not involved with the asset. This will be exactly the case with Nova, by the way. And these people effectively safeguard both the independence and impartiality of the journalists in every country in which we operate.
That is pretty interesting. What kind of people are members of this board?
These are international, very experienced ex-media people who have worked in other media, either in UK or German companies, like BBC and RTL, whom we have recruited as independent and knowledgeable media experts to perform these services for us.
One of the acquisitions here in Bulgaria that raised a lot of eyebrows was the deal for the newspapers formerly owned by Delyan Peevski. Why did you do this? From a business perspective, it does not make any sense.
There is a perception that newspapers are effectively a declining medium. And it is true, that in most markets print newspapers seem to be on the decline. The reality is that the way we look at newspapers is local content.
And what attracts us to the newspaper business is that - we saw it in the case of Telegraph here - we saw it as an opportunity to acquire local content. And Telegraph was the missing piece in the puzzle of having a 360-degree business in Bulgaria, irrespective of the fact that it is a very strong brand. But for us, we believe that having the newspaper arm allows us to offer the full media service in Bulgaria.
Now, our vision at United Group is that we cannot assume print newspapers should always remain print, so our strategy is to extend Telegraph's business also into the digital world and to further strengthen our digital portfolio in Bulgaria. But, to be honest, we think that newspapers will still have a place in the media landscape and, hopefully, we will be able to prove it here in Bulgaria.
When this deal was announced, the headline of the press release of United Media was "United Media agrees to buy these newspapers." Have you been asked to buy these newspapers or was this just a figure of speech?
No, we were never asked to buy anything. As I said, we saw it as a missing piece of the puzzle in order to have the full suite of products that we can offer on the media side in this country. I repeat - our vision is very much to bring as much advanced technology here, to have this proprietary content that we can distribute. Newspaper is one medium that we can distribute, together with television and any other medium that we will be able to leverage on the telecom side. But it was very much a figure of speech; nobody asked us to do anything.
How is the deal about the Inter football club going?
As you can imagine, there is not much I can say about this. The reality is, however, that it is not Inter itself we focus on, but the area of sports generally. At BC Partners we have identified sports as one of the industries that has been disrupted during the pandemic, but even before that, due to a combination of sports rights and various media distributing their content.
So, we look at sports as another area for us to own content, not from the perspective of fans, although we cannot ignore the impact that ownership of any sports club, be it football, basketball, or any other, will have, and we should not ignore the fans. But we are looking at this through the eyes of content and we believe that sports offer unique and timely content.
And if you own a sports club that means that you are the owner of that content. If you can distribute it in various ways you will be able to monetize that content in various ways and make the most out of it. We are still in discussions with Inter, but I cannot predict how this will end.
Just one last question on newspapers: can you disclose the price of the deal on the newspapers?
I am afraid I cannot disclose this due to confidentiality reasons.