Happy New Year to the team at American Tower Africa, which begins the year with the completion of its acquisition of Eaton Towers, and its sites in Ghana, Kenya, Uganda, Niger and Burkina Faso. First announced in May 2019, the transaction closed as predicted at the end of Q4, adding approximately 5,700 sites to American Tower’s African portfolio, bringing American Tower’s global portfolio to approximately 177,000 sites.
The deal
American Tower reports that the value of the acquisition, subject to certain post-closing adjustments, and including the assumption of Eaton Towers’ debt, was approximately US$1.85bn, the same as announced in May 2019. However, the total number of towers acquired grew from 5,510 sites in May 2019, to approximately 5,700.
The US$1.85bn price tag for Eaton Towers gives it a per tower valuation of US$324,561. As announced in May, the assets are expected to generate approximately US$260mn in property revenue, approximately US$165mn in gross margin, and US$150mn in EBITDA in their first full year in American Tower’s portfolio. Eaton Towers’ tenancy ratio at the time of the deal was announced was 1.5x, which we believe is still accurate.
Although reported widely as a 12x EBITDA multiple for Eaton, TowerXchange understands the American Tower offer was structured against a ‘locked box’ using Eaton’s 2018 December 31st EBITDA, with an EBITDA closer to US$140mn, suggesting an EBITDA multiple of approximately 13.2x. Although the EBITDA multiple at close is likely lower as Eaton Towers has been profitably growing all year. Over 80% of the revenue American Tower is buying comes from tier one MNOs Airtel, MTN, Orange and Vodafone – indeed, more than 50% is derived from Airtel, American Tower EMEA’s largest customer.
At the time of the deal Terry Rhodes, CEO of Eaton Towers told TowerXchange “Of course it’s always easier to attract investment in than achieve an exit, but the key to securing a good valuation for our shareholders has really been the growth we’re delivered – profitable growth! When you have profitable growth, it attracts a higher multiple. Eaton Towers is a natural fit for American Tower given the overlap between the two portfolios, and they were very pleased with the South African business they acquired from us in 2016.” Between the deal announcement in May 2019 and the deal closing at the end of 2019, Eaton Towers added 200 sites across its five markets.
American Tower’s 18,370 African sites as it begins 2020
In other news
Covered elsewhere in TowerXchange, American Tower has also reached an agreement with MTN to acquire MTN’s minority stakes in each of the Company’s joint ventures in Ghana and Uganda for total consideration of approximately US$523mn. The transaction is expected to close in the first quarter of 2020, subject to regulatory approval.
As shown in the accompanying table. American Tower’s acquisition of Eaton Towers is the third largest towerco-on-towerco deal in the last six years. American Tower has been the buyer in the top five such deals. Closing such deals is often as hard as agreeing them, with regulatory consent much easier to secure in some markets than others. American Tower’s history of closing towerco on towerco deals clearly helped expedite the closure of the deal on schedule.
Eaton Towers acquired the majority of their sites in sale and leaseback deals from 2010 to 2014. Eaton’s 2014 Airtel buy and leaseback valued its towers at US$201k, its deal with American Tower has earned a valuation of nearly US$325k per tower, attracting a ~62% premium on the price paid in 2014.
Towerco-on-towerco M&A deals >$100mn in the last six years
Towerco-on-towerco M&A for undisclosed sums, which TowerXchange suspect exceeded US$100mn, in the last six years
What has American Tower bought?
American Tower has acquired approximately 5,700 sites from Eaton Towers. Given what we know about growth plans prior to acquisition TowerXchange estimates American Tower has acquired 1,473 sites in Ghana, 1,534 in Uganda, 1,341 in Kenya, 661 in Niger and 691 in Burkina Faso. American Tower will enter Niger and Burkina Faso for the first time, but the deal will lead to consolidation in Ghana, Kenya and Uganda where both American Tower and Eaton are already active. Accurate site counts in each country will be available on publication of American Tower’s updated accounts after a full quarter of integrated operations.
Organic growth opportunities
The purchase of Eaton Towers was not just a purchase of an existing portfolio of towers, but also an investment in an anticipated pipeline of build-to-suit. Eaton Towers has right of first refusal with Airtel in all five of its markets and the American Tower acquisition, coupled with Airtel Africa’s return to profitability and projected post-IPO improvements in financial health, mean a healthy new build pipeline of approximately 3,000 towers is anticipated in the next decade.
Tower ownership by Africa’s three largest independent towercos
Impact on the African tower market
This deal may herald a period of consolidation in the African tower market, reducing the number of major towercos active from four to three. The 18,370 towers of the combined American Tower/Eaton Towers portfolio puts it behind IHS Towers’ 24,002, but American Tower Africa’s expanded seven country portfolio is now larger than the 16,466 sites IHS Towers own in Nigeria. And it is now over 10,000 sites ahead of Helios Towers’ 6,903.
2019 saw major liquidity events or significant fundraising at all of Africa’s big towercos, American Tower has bought Eaton Towers, IHS Towers raised a US$1.3bn bond and simplified its capital structure, and Helios Towers went ahead with its IPO. This activity has placed all three major African independent towercos on a firm footing for activity in 2020. All three are looking at entering Ethiopia, should its liberalisation continue as expected. And IHS Towers has already used some of its dry power to move out of the continent to acquire Cell Site Solutions in Brazil and its 2,290 sites.
The two year period from the beginning of 2018 saw different exit strategies tested by Africa’s towercos’ major investors. IPOs were explored by all three non-listed towercos but only Helios Towers proceeded last year. As a public company, Helios retains an appetite to enlarge and find new opportunities. IHS Towers is also exploring new opportunities, following a strategy diversifying its portfolio away from Nigeria before approaching public markets again, and Eaton Towers’ investors have now found a satisfactory exit through acquisition by American Tower.
