Read this article to learn:
- Background on the French tower market
- What is for sale
- This deal in the context of other French tower deals
- Who will bid
French media group NRJ has announced its intention to sell broadcast towerco Towercast, a competitor to TDF, which offers DTT and FM broadcast services via 500 sites across France. Declaring that Towercast isn’t a ‘fit’ with NRJ’s core business, it’s believed NRJ hopes to raise up to €300mn from the sale. TowerXchange takes a look at what’s on offer, how this sale could affect market dynamics and who the leading bidders are likely to be.
France is one of Europe’s most investible tower markets, and the aggressive market entry of Iliad’s Free Mobile in 2012 has shaken up incumbent MNOs Orange, SFR and Bouygues Telecom, driving down tariffs and ARPU amidst the huge capital expense of spectrum and network densification for 4G.
The French market is host to a diverse array of established independent infrastructure owners in Cellnex, ATC Europe and TDF. Operator Bouygues has embraced the sale and leaseback model and Free Mobile, which is looking for growth without heavy infrastructure investment and is coming to the end of a roaming agreement with Orange, are both very open to third party towers. Added to this is a good amount of M&A, particularly of smaller, entrepreneurial towercos such as FPS or ITAS, meaning whole European ecosystem seems distilled into the French market.
Key players in the French market
TowerXchange has closely followed tower deals in France over the last few years. On 19 December 2016 American Tower announced the acquisition of French FPS Towers for €697mn. The sale of Antin’s FPS Towers – around 2,500 towers acquired from Bouygues in 2012 and grown into a towerco with an impressive track record – garnered plenty of interest in the tower industry, and saw American Tower make a significant step in terms of their commitment to the European market.
Cellnex have gained their foothold in the French market in three tranches: in 2016, they acquired 230 and 270 towers from Bougyues, across two transactions. Their third deal, in 2017, was split into two phases: the first or 1,800 existing and operational sites for €500mn. Cellnex stated that this portfolio was for ‘urban’ sites, which TowerXchange believes consists primarily of rooftop sites. The second part of the deal provides for the construction of 1,200 new towers 2017-2022, in a deal worth €354mn.
TDF, Towercast’s direct competitor in the broadcast market, has undergone some significant restructuring over the last five years, with an increased focus on the French market. In 2016 they acquired broadcast towercos ITAS for an undisclosed amount ‘in excess of’ €100mn.
Tower deals in France since 2012
Communications infrastructure in France
While Bouygues Telecom has divested the majority of their towers, Free Mobile has few of their own towers as a function of a roaming agreement with Orange which had been due to run through 2020, but which will now be phased out from 2017, meaning they will need to leverage independent towers even more.
There is a good culture of infrastructure sharing in France, where many network planners seem inclined to buy rather than build towers. There are a total of 62,794 points of service spread across 47,347 telecom structures, including ground based towers, rooftops and other structures, giving a prevailing tenancy ratio of 1.33. However, the tenancy ratio on ground based towers is around 1.5, and even higher on sites proactively marketed for co-location: France’s oldest towerco, broadcast-telecom hybrid TDF has a tenancy ratio of 1.8 on their 4,865 telecom towers.
The value of assets in the French tower market is particularly sensitive to the governance of RANsharing, given the propensity of French MNOs to enter such partnerships. The 4G RANsharing partnership between Bouygues Telecom and SFR is due to end in late 2018, ending concerns about a possible knock on effect on French tenancy ratios.
Broadcast towers in Europe
Towercast isn’t the only broadcast asset up for sale in Europe at the moment. The UK’s broadcast behemoth Arqiva is currently exploring options, with a bidding process reaching the final stages as of September 2017. While Arqiva’s bread and butter lies in broadcasting, the company has maximised its assets to accelerate growth in its telecoms unit, which grew 9% in FY16, accounting for 36% of Arqiva’s revenue.
Cellnex, who (as Abertis) began their journey in communications infrastructure as broadcast tower owners, now generate 55% of their annual revenue from their telecoms business unit and just 33% from broadcast. In addition they acquired Dutch broadcast towerco Alticom in 2017 for €133mn.
In Italy, broadcast towerco EI Towers spun out their telecoms arm into the highly successful TowerTel, and Spain’s second broadcast towerco, Axion, was recently acquired by AMP Capital. Broadcast assets are used (and monetised) for telecoms purposes right across Europe, including of course, TDF, who generated 43% of revenues from telecoms in 2016.
What is the breakdown of the high sites used by the French telecom industry? And who owns them?
What’s for sale?
Towercast owns around 500 towers across France, with a focus on DTT and FM transmission. The broadcast towerco is owned by media group NRJ, a one-time pirate radio operation which now owns five radio networks. NRJ has been close to a sale before, most notably in 2014 when the process was whittled down to two bidders and the sale was believed to be a ‘done deal’, only to fall at the final hurdle, reportedly on price.
This time around, CEO Jean-Paul Baudecroux told Le Figaro ‘Towercast is very profitable and could be worth more than €300mn. Tower cast is not in our core business and its membership of our NRJ Group is even today a handicap to attract new customers An independent buyer could diversify customers in the audiovisual sector and also in telecoms, where Towercast offer some solutions, but does not have a comprehensive offering.
Last year, Towercast generated sales of €55 million and EBITDA of €27 million, but Baudecroux believes revenue could grow by as much as 20-25% by acquiring a more diverse client base across both broadcast and telecoms.
The figure of ‘at least’ €300mn reflects NRJ’s ambitions to raise 11 to 13x Towercast’s EBITDA of €27mn, which would not seem an unrealistic goal, given recent valuations in communications infrastructure. However, Towercast’s revenues were down by 12.8% and operating income down 24% last year, much of which was related to the French government’s decision to sell the 700MHz band range to telecom companies, resulting in the loss of two multiplexes and seeing a sharp drop in profit. Although Towercast received compensation of €18.2mn, it seems that re-grouping and driving the business in a new direction is not something for which NRJ has the appetite, and this need for a new strategy may well knock on to the valuation of the business.
NRJ claims to have received interest from both investment funds and industry buyers, and if the company’s valuation is hampered by a recent drop in profit, it certainly won’t be impeded by investors’ appetite for French towers, with several parties very likely to want to add to their French portfolio.
It’s highly likely Cellnex will be interested in this asset. Given their growth strategy is to enter a market, establish themselves and then consolidate, this opportunity to gain a further 500 high towers with ready-made broadcast and telecoms tenants seems a good fit. Cellnex also have a proven track record in both telecoms and broadcasting, giving them the skills and relationships needed to really maximise the opportunity.
American Tower’s partnership with PGGM and subsequent acquisition of FPS towers at the end of 2016 did not open the floodgates to an increase in European acquisitions, however their acquisition of FPS shows their commitment to the French market, and that they see growth as an important part of their strategy in the country. This opportunity to grow their French portfolio by 20% and diversify may well encourage them to enter the bidding process with increased alacrity.
For TDF this could be a triple win – both extending their coverage, acquiring new clients and removing their last competitor from the broadcast market. The fact that their main investor, Brookfield, is believed to be leading the pack in the bidding process for Arqiva in the UK, shows that they have plenty of appetite for broadcast assets with telecom co-location potential. Some industry experts have been questioning whether the French government would allow TDF to gain a monopoly over broadcasting infrastructure, given the fact that they acquired the other French broadcast towerco, ITAS, in 2016. A deal like this would certainly be subject to scrutiny, whoever the buyer, and the French regulator is certainly keen to discourage consolidation on the operator side. Whether this would extend to infrastructure remains to be seen.
First State Investments
Owners of Finnish broadcasting asset Digita since 2012, Australian First State Investments has seen the company grow and flourish in both tower numbers (from under 100 to 556 towers), diversification of clients and diversification of offering. Although they haven’t been linked to any other tower deals in Europe this year, it’s worth considering them as potential bidders for this smaller broadcast towerco which falls firmly within their field of experience.
AMP Capital acquired Spain’s second broadcast towerco Axion in 2016. With 582 towers, Axion is similar to Towercast in both size and market position. AMP also own Towercom, Ireland’s largest towerco, and may well be looking to grow their presence in the sector.
The sovereign wealth fund of Singapore, GIC bid (unsuccessfully) for a stake in Telefónica’s infraco Telxius when it was available earlier in 2017, but lost out to KKR. As investors in Africa’s largest towerco IHS Towers, they also have solid credentials in telecoms infrastructure.
This US based towerco platform was founded by Marc Ganzi and Ben Jenkins, who have invested heavily in telecoms infrastructure since the company’s inception in 2013. With tower assets in the US, Mexico, Colombia and Peru and ‘neutral host’ asset Extenet Systems, they’ve been looking for the right foot in the door of European towers for some time, and will be considering opportunities in France.
Linked to European tower acquisitions including Oi’s potential sale of Portugal Telecom’s towers in 2014 (which didn’t materialise as the whole organisation was sold to Altice) and most recently successful bidders for the 40% stake in Telxius. KKR is a global alternative asset manager focusing on private equity, fixed income, and capital markets.
Industry speculation is naturally focussing mainly on the three competing towercos already in the French market: TDF, Cellnex and American Tower. Current market conditions, including Free Mobile’s need for more coverage and the end of Bouygues and SFR’s RANsharing deal, are allowing the three large towercos to grow but the finite nature of the current growth means any chance to get ahead in France will be highly valuable to the key players. We expect to see the bidding for this asset to be hotly contested.