On December 19, Wireless Infrastructure Group announced that Brookfield Infrastructure had reached a deal to acquire 3i Infrastructure’s shareholding in the company, becoming the towerco’s sole financial sponsor, in a £575mn transaction. With Brookfield Infrastructure one of the world’s largest infrastructure and real estate investors, the deal not only equips Wireless Infrastructure Group with large-scale capital for future major M&A but also provides a potential springboard for a rapid expansion of the company’s indoor networks business. TowerXchange examine the deal, the synergies it creates and the impact it could have on the European market.
On December 19, Brookfield Infrastructure reached a deal to acquire 3i Infrastructure’s 93% stake in UK towerco Wireless Infrastructure Group (WIG) for a total investment of £387mn. 3i Infrastructure first acquired a minority stake in WIG back in April 2016, investing £75mn for a 36% economic interest, before upping this to a majority shareholding investing a further £187mn in January 2018, the 2019 sale to Brookfield gives 3i Infrastructure a 27% gross IRR.
Speaking about the deal, Richard Laing, Chair of 3i Infrastructure, commented “This transaction delivers exceptional value to shareholders, well above our investment case back in 2016. Whilst 3i Infrastructure aims to hold its investments over the longer term, we will sell investments where this generates significant additional value for shareholders. This has been an excellent investment for the Company, despite the relatively short holding period.”
Phil White, Managing Partner and Head of Infrastructure, 3i Investments plc, Investment Manager of the Company, added “This sale arises unexpectedly but in the context of a changing competitive landscape in the UK mobile towers sector where scale is increasingly important, with a number of potential tower portfolio transactions anticipated to take place next year. In the process of preparing to position WIG for such a transaction, we received a compelling offer from Brookfield Infrastructure which, after careful consideration, we decided to accept. We concluded that it is better for shareholders that we sell our interest in WIG at this attractive price and look to recycle the capital into new opportunities.”
Scott Coates, CEO of Wireless Infrastructure Group, said: “We are delighted to welcome Brookfield as our shareholder and for the opportunity to partner with large-scale patient capital. Brookfield is one of the world’s largest infrastructure investors and its focus on data infrastructure and developing assets that can transform communities, aligns with our ambition to help improve connectivity across the UK. After a successful partnership with 3i, this deal marks an opportunity to shift gears for WIG. With the backing of large-scale capital, WIG is now ideally positioned to explore more strategic infrastructure combinations with mobile operators.”
Sam Pollock, CEO of Brookfield Infrastructure, said: “We are very pleased to be partnering with the management team at WIG to support their continued growth. We have been impressed by the Company’s accomplishments to date and look forward to supporting WIG’s continued expansion, both in products and geographies. WIG is our first investment in UK data infrastructure and underpins our commitment to both the sector and country.”
Established in 2006, WIG is the longest standing pureplay independent tower company in Europe. The company has steadily built up a portfolio of over 2,000 towers (the vast majority of which in the UK market, with around 100 in Ireland and the Netherlands) through a combination of new builds and selective acquisitions, and has developed the UK’s largest indoor networks business (by footprint covered), a division which achieved a significant increase in scale when the company acquired Arqiva’s indoor business back in late 2018.
Whilst WIG had secured the financial backing of a strong investor in the form of 3i Infrastructure, the increasingly large scale of tower transactions in Europe, coupled with stiff competition from the likes of Cellnex (flush with capital from their IPO) and a growing number of large financial investors (such as KKR and PGGM) made it hard for WIG to compete. In spite of their experienced managed team and strong reputation, the company lacked the financial backing to acquire the increasingly large tower portfolios on offer and, as such, struggled to achieve significant scale in the European market. With further large-scale tower transactions expected, WIG and 3i began a process to raise further capital but a compelling offer from Brookfield for a takeover of the business proved too good to refuse.
Brookfield is one of the world’s largest infrastructure investors and has long been looking for an opportunity to expand their presence in the European tower industry. The company are investors in French towerco, TDF (which owns 7,000 towers and 5,500km of fibre backbone in France) and have been linked to further tower transactions across the continent, reportedly coming close to acquiring Arqiva following their cancelled IPO. With a proven appetite for digital infrastructure globally (Brookfield are also investors in data centre companies Evoque and Ascenty and have recently reached a US$3.7bn deal to acquire India’s Reliance Jio Infratel and its 130,000 towers), the acquisition of WIG adds a valuable company to Brookfield’s portfolio.
For WIG, the backing of a large-scale infrastructure investor such as Brookfield propels them into a whole new league, giving them the financial partner to compete in tower sale and leaseback and M&A activity coming up in the European market.
What M&A activity could we see the newly recapitalised WIG participating in?
Perhaps the most imminent acquisition target in WIG’s crosshairs might be the UK’s Cornerstone. Cornerstone, a 50:50 joint venture between Telefónica’s O2 and Vodafone which owns and manages a network of 16,500 towers in the UK is expected to come to market in 2020. Both Vodafone and Telefónica have announced plans to carve out and monetise assets and as such, it is widely expected that the two will seek a new owner for their UK joint venture towerco.
Cellnex had long been seen as the most likely candidate to acquire Cornerstone. Having established a presence in the UK market through a 2016 acquisition of Shere Group and its 540 sites, Cellnex (which has been on a major M&A drive in the past 12 months) had made no secret of their appetite to achieve scale in the country.
In early 2019, Cellnex reached a deal to manage and market 220 BT high towers and then later in the year reached a deal to acquire Arqiva’s telecoms division, which (when closed) will add 7,400 UK towers to its portfolio, giving the towerco the much needed scale that it had been after. Whilst Cellnex will likely retain an appetite to acquire Cornerstone’s portfolio, commentators suggest that such a high concentration of UK towers in one company may face resistance on competition grounds. WIG, with Brookfield’s backing, presents a highly attractive alternative.
Yet further opportunities exist beyond the Cornerstone portfolio. Europe’s MNOs are currently undergoing a major review of their tower outsourcing strategies. In 2019, a host of major MNOs including Vodafone, Orange and CK Hutchison announced plans to carve out their passive infrastructure. Whilst the current strategies hinted at by the operators suggest that the plans involve the creation of pan-European towercos in which the operators will look to sell or list a minority stake, the opportunity exists that they may explore different routes in different markets. In Italy, Vodafone made the decision to merge its tower portfolio with that of INWIT, in Spain Orange decided to sell 1,500 non-strategic sites to Cellnex and as mentioned, in the UK Telefónica and Orange will most likely sell their JV infraco, Cornerstone. The question remains as to whether the operators want to keep majority ownership and majority control or whether they will consider a sale to a strategic, if the latter, then WIG will be well positioned for such a deal.
Beyond the acquisition of tower portfolios from the continent’s MNO via a buy and leaseback deal, WIG may also consider the roll up of other smaller towercos in the European market. Whilst many are limited in scale, an acquisition could give WIG a footprint in a new country from where they may participate in larger sale and leaseback activity should it arise.
Synergies beyond macro towers
Whilst the joining of forces between one of the world’s largest infrastructure investors and one of Europe’s most experienced towercos creates a formidable entity to participate in any major tower M&A activity, the synergies achieved through Brookfield’s investment in Wireless Infrastructure Group extend beyond macro towers.
As well as having an appetite for telecom infrastructure, Brookfield is one of the world’s largest investors in real estate, owning properties which cover over 450mn square feet as well as a number of iconic buildings. Wireless Infrastructure Group has established the UK’s largest indoor networks business, and a tie up with Brookfield provides access to a real estate portfolio which could massively amplify WIG’s opportunity set.
Whilst the majority of WIG’s cashflow comes from their macro-site business, the greater growth is now coming from their indoor networks business. Property owners’ attitudes towards indoor connectivity are changing, where landlords were once demanding revenue from an in-building solution provider, building owners are now increasingly prepared to contribute towards a solution in part or in full. The increasing usage of energy efficient glass impenetrable to mobile signal (with penetration concerns set to heighten as 5G comes online) along with increasingly common viewpoint that mobile connectivity be seen as an essential utility means the market for indoor wireless infrastructure is set to explode. WIG with proven expertise will be well positioned to capitalise on this growth.
Valuation multiples of Europe’s towercos (whilst not disclosed in Brookfield’s acquisition of WIG) are often north of 20x. Whilst such valuations may deter some investors (including the big U.S. listed towercos), for players such as Brookfield with both data infrastructure and real estate interests, the synergies created in the in-building networks side of a towerco’s business offer significant upsides; by effectively selling indoor connectivity to themselves, real estate investors can delever their investments in towercos.
What’s next for WIG?
For WIG, the biggest area of imminent organic growth will most likely be in their indoor networks business. Founded nine years ago, the unit has gained critical mass in the past couple of years and now covers buildings with an annual footfall of over 1.25bn people. WIG has commented that within the M25 alone, they see thousands of target properties and with a new potential pipeline opened up through Brookfield’s real estate portfolio the division could see a significant boost.
In terms of M&A activity, the sale of Cornerstone looks like the most imminent deal which WIG will have an appetite to participate in, although with pan-European ambitions (bar France where Brookfield has an investment in TDF), expect WIG to be a significant player in any tower transactions which come to market.
WIG also remains committed to exploring other forms of wireless infrastructure which could play an eventual role in its future. The company’s special projects division is currently exploring areas such as fibre connected small cells, connectivity along transport routes and edge data centres, investing in R&D to ensure that WIG stays at the forefront of developments in Europe’s digital future.
The tie up of Brookfield and Wireless Infrastructure Group creates a formidable player in the European wireless infrastructure market, combing WIG’s long-standing expertise in both macro towers and indoor networks with Brookfield’s financial backing and real estate connections. TowerXchange eagerly awaits the newly recapitalised towerco’s next move!
Scott Coates, CEO of Wireless Infrastructure Group will join the speaking faculty at this year’s TowerXchange Meetup Europe. Click here for more information.
