Gars Telecom, a private Russian telecom company, is interested in acquiring smaller B2B operators based in Moscow or St. Petersburg and the surrounding areas, CEO Pavel Gorenkov said.

The company is looking to buy telecom operators with existing infrastructure that provide services for offices. It is after targets with operations in the B2B sector, but given that most companies also have B2C businesses, Gars Telecom is willing to consider targets with at least 50% of revenue coming from B2B.

Gars Telecom values such companies at 3x-4.5x EBITDA. However, there are price discrepancies; seller expectations stand at 6x — 8x EBITDA, while market valuations of traded companies suggest a maximum of 5x EBITDA, the CEO said.

Due to the lack of suitable B2B targets, along with valuation discrepancies, the sector’s M&A market is low key, the CEO said adding that a pick up could occur next year. Consequently, there is no specific timeframe for an acquisition. The company will use in- house advisers for the deal.

Gars has an M&A budget of USD 5m for 2014, but if a larger opportunity arose it could increase that to around USD 10m. The company’s latest acquisition was in 2012, when it acquired Telios in Korolev town of Moscow region for an undisclosed amount. It takes the company around three-to-four months to integrate a target. Gars Telecom’s shareholders could consider a partial of full exit, in which case it would hire external advisers. However, price discrepancies also hamper this option. The company’s shareholders would be willing to consider a valuation of more than 5x EBITDA, which stands at around USD 10m for 2013. The company has an annual EBITDA margin of 30%.

Gars Telecom is 25%-owned by private equity fund Quadriga Capital Russia and 75% by private investors and management.

The company recorded revenues of RUB 1.2bn (USD 33.6m) in 2013, which represents 15% growth year-on-year. Internet-based revenue accounted for 40% of turnover, voice, corporate networks, outsourcing and consulting brought in 30%, and the remainder came from other services.

The company sees Internet services as the main growth driver with potential for volume growth, less so with over-the-top television. It also anticipates an increase in demand for data transfer.

The company aims to expand its service offering in 2014. Its client base grew 25% last year, and traffic transfer networks increased by 10 times.

Gars Telecom has a 9% market share in telecoms services for the commercial real estate sector in Moscow and aims to bring that to up to 15% in the next two or three years. The company generates 92% of its revenue in Moscow, and the rest in St. Petersburg.

Gars Telecom is a fixed line operator providing fibre optic communications, such as Internet, telephony and data.

There are few similar players on the market with up to 80% occupied by giants Beeline Business, MTS and Rostelecom. Nauka Svyaz and Norilsk Telecom are Gars Telecoms’ closest competitors.

by Maryna Irkliyenko in London