After years when telecom operators guarded infrastructure such as towers as core assets, they have been enthusiastically spinning them off into new companies. They are becoming more open about unlocking value out of their infrastructure assets and exploring more innovative approaches to deploy new assets.
Likewise, investors are being presented three different concepts of transactions involving telecom infrastructure:
The intrinsic differences in nature across transactions’ spectrum, e.g., expected returns, capex requirements, naturally attract different potential investors, although in most cases investors are private companies with financial flexibility (e.g. with respect to debt). In later stages, acquirors are usually specialized infra managers for those asset classes (e.g. TowerCos, NetCos, etc).
Mature markets
Investment opportunities related to more mature markets are targeted by investors with deep pockets (these operations are usually large in nature) that are looking for low to mid returns and prime stable revenue and cash conversion, even if at expense of a more aggressive growth. These assets usually have large entry barriers (as the infrastructure is already deployed) and high switching costs from customers.
They usually look for leverage opportunities to take advantage of the funds they raised and interest rate arbitrage opportunities from the low rates environment. Investors like pension or sovereign funds can be found on these deals.
Maturing markets
Transactions in maturing markets tend to be pursued by infrastructure funds that are attracted by stable revenue profiles and solid cash conversion, although are willing to roll up their sleeves in pursuing additional growth. They are usually not afraid of putting additional money to pursue moderate growth by acquiring companies out of which they can extract synergies or fight for brownfield growth by capturing new business. Nevertheless, these transactions typically allow the InfraCo to deploy capex with limited risk, as it has some degree of preselling or is directly built on demand (Build to suit).
Growing markets
Regarding the growing markets, investors usually include growth infrastructure funds that aim to grow their investments by deploying capex after the acquisition (mostly driven by external debt) possibly following an organic expansion. It is not uncommon to find companies operating on other segments across the value chain that show interest as they can benefit from operational synergies, e.g., data centres collocation providers entering infrastructure-as-a-service business.
One common aspect usually found in investors in telecom infrastructure is their ability to extract value out of minority positions. Telecom operators not needing to divest or not bold enough to maximize the value out of their infrastructure will look for minority investors. To succeed in these situations investors usually need to compromise their own interest with those of the telecom company, who then becomes partner and client (and sometimes provider). These relationships are governed by carefully crafted contractual obligations (MSA/MCA: master services / commercial agreements) and functioning governance mechanisms (Board of Directors) to ensure interests are aligned with respect to future rollout and financial strategy.
