Private equity leveraged buyouts in European telecoms: The case of Eircom

Highly leveraged buyouts (LBOs) of former state owned telecoms operators by private equity groups have occurred in a number of countries in recent years. This paper examines the case of Eircom in Ireland which has experienced five changes in ownership since full privatisation in 1999, two of which were LBOs. Enormous increases in Eircom’s debt levels as a result of the LBOs resulted in the company’s bankruptcy in 2012. This paper argues that this outcome was largely attributable to the short-termist strategies adopted by the private equity groups that assumed ownership of the enterprise. These strategies included high leverage, cash extraction and underinvestment in the fixed-line network which contributed to the demise of the enterprise and had wider economic and social effects. The Eircom case demonstrates the risks attendant to ownership of important network infrastructure by private equity groups and the need for regulatory safeguards to protect the public interest.

► We examine the history of Eircom in Ireland since full privatisation in 1999.
► We focus on the impact of two highly leveraged buyouts by private equity groups.
► We describe how the buyouts resulted in unsustainable debt levels and eventual bankruptcy.
► We highlight the impact of the buyouts on the development of the fixed-line telecoms sector.
► We outline the lessons from the Eircom experience for policymakers in other countries.