This August, IHS Towers published a small note announcing a big deal. Although now a global towerco, the press are referring to IHS’s planned public market debut as Africa’s largest ever IPO in the United States. Following rumours of a postponed IPO in 2018, all eyes have been on IHS Towers as it has expanded out of its African heartlands to become a globe-trotting towerco giant. With over 27,000 towers across three continents and revenues in excess of US$1.2bn, IHS Towers’ original investors are now ready for it to go public. In this article TowerXchange takes a look at what we know about the IPO so far, the current state of play at IHS Towers and how the business compares with its peers.
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What do we know?
After reportedly exploring an IPO in 2018, IHS Towers published a brief press release on Friday 14th August announcing it was exploring a potential registered IPO in the US. According to Bloomberg, IHS Towers has selected Citigroup and JPMorgan Chase as global coordinators for a listing. Bloomberg has reported that the towerco was aiming for a valuation of US$7bn, with IHS Towers reportedly seeking to raise about US$1 billion in New York. Last year IHS Towers raised US$1.3bn in a bond issue. Rumours of an IPO began swirling in February 2020, but have only come to the fore in recent months.
IHS Towers’ owners include AIIM, ECP, FMO, GIC, Goldman Sachs, IFC, Investec, KIC, MTN Group and Wendel. MTN’s recent annual report explained they were divesting their remaining investment in towercos, and an IHS Towers’ IPO is necessary before MTN can effectively unload their shareholding. Similarly, TowerXchange understands that a number of the development finance organisations which have backed IHS Towers are keen to realise their investments now IHS Towers is a mature business.
For some time, IHS Towers has been following a diversification strategy to decrease the prominence of Nigeria in its portfolio. As of today, Nigeria represents just under 60% of the company’s 27,473 sites following acquisitions in Kuwait, Brazil, Colombia and Peru in the past six months
IHS Towers’ IPO would be the capstone of a trio of deals seeing the investors in Africa’s three privately held towercos successfully exit their initial investments. Before looking at IHS Towers’ IPO in more detail, we will recap relevant IPOs and acquisitions, but first, who are IHS Towers?
Who are IHS Towers?
IHS Towers began in 2001 as a tower builder in Nigeria. In the years that followed, the company began maintaining towers for MNOs too before eventually beginning to offer co-location services in 2009. The company completed its first major tower deal in 2010 with the acquisition of 800 Visafone sites, and then gained significant scale in Nigeria with a c. 9,000 site tower deal with MTN (with IHS and MTN creating a joint venture into which the assets were placed) and two deals with Etisalat (acquiring 2,136 towers followed by a 555-tower deal).
In a wave of deals from 2013-2015 IHS Towers entered Cote d’Ivoire, Cameroon, Zambia and Rwanda. At the start of 2016 IHS towers operated 21,132 towers and was poised to consolidate its position as Nigeria’s leading towerco by acquiring Helios Towers Nigeria’s 1,211 sites.
During its past acquisitive stage in Africa, IHS Towers signed deals with MTN in Cameroon, Cote d’Ivoire, Zambia, Rwanda and Nigeria, with Orange in Cameroon and Cote d’Ivoire, with Airtel in Zambia, Rwanda and Nigeria, as well as a number of other acquisitions in Nigeria, including deals with Visafone, Etisalat, Hotspot Networks and Helios Towers Nigeria. The result is a portfolio weighted towards Nigeria and Africa’s three leading MNOs: Orange MTN, Orange and Airtel.
Despite exploring an acquisition in Saudi Arabia, IHS Towers would have to wait until early 2020 for its geographic diversification strategy to reach fruition. In short order IHS Towers added four new countries to its portfolio; substantial portfolios in Kuwait and Brazil, as well as smaller bridgeheads in Colombia and Peru. As in Africa, its tenants are principally Tier 1 MNOs in their markets, Claro, Vivo, TIM and Zain. Geographic diversification has become an important part of IHS Towers’ strategy, with the towerco being linked to potential deals in the Philippines, Ethiopia and Pakistan too.
A planned 2018 IPO never reached consummation due to political difficulties in Nigeria which have since been resolved, but IHS Towers began to establish credibility in the international capital markets in 2016 with the issue of a US$800mn bond. In 2019 this was refinanced with a new US$1.3bn bond, with another US$130mn of debt added in 2020. Bloomberg report that the company is looking to raise US$1bn in its planned IPO, leaving the company with plenty of ammunition for its medium-term goals of continued organic growth, inorganic expansion into growth markets and exploration of adjacent sectors like fibre.
From beginning as a tower builder in Nigeria, IHS Towers has grown to be the fourth largest multi-market independent towerco in the world, with 27,434 sites, a tenancy ratio of 1.54x and a deal history spanning 16 major transactions in three regions and nine countries.
IHS Towers today
IHS Towers’ 27,000 tower portfolio generated over US$1.2bn in revenue and US$669bn in EBITDA in 2019. Figures from the company’s August 2020 presentation indicate an EBITDA margin in the range of 55.8% and 56.5% for H1 2020.
The towerco business model rests on long-term contracts and contracted revenues. At the time of writing, IHS Towers has US$8.9bn of contracted tenant lease revenue, with an average remaining tenant term of 7.6 years. Looking at the quality of that revenue reveals that IHS Towers has contracted 64% of its revenues in “hard currencies” like the dollar or the euro, with the remainder linked to local inflation or fuel costs. This compares with 59% at Helios Towers today.
IHS Towers has also shared its current tenancy ratio, which sits at 1.54x following the acquisition of sites in a number of new markets. This compares with Eaton Towers’ tenancy ratio of 1.5x when it was acquired by American Tower for a 13.2x EBITDA multiple. This places it behind comparable large towercos; Crown Castle’s tenancy ratio is 2.10x, American Tower’s is 1.90x, INWIT’s is 1.83x, SBA’s is 1.80x and Cellnex’s is 1.61x. This highlights the significant runway for growth still available for IHS Towers from simple lease-up. Its gross profit on a single tenant site is currently 59%, but grows to 70% for a two tenant site and 73% for a three tenant site.
IHS Towers has reported fewer operational figures, but has released some numbers around recent site build, capex and its recent average power uptime: 99.7% across the African business for the six months ended June 30, 2020. As is typical for firms approaching an IPO, capex by IHS Towers has been subdued relative to past years, as you can see, capex and new site builds have been declining since 2018. However, once the IPO is behind them and new capital is raised, TowerXchange expects IHS Towers to begin deploying capital again into new markets, new sites, and new equipment. New site build is key to successful organic growth, and why BTS commitments are key to the new wave of recent SLBs.
Figure 1: Towers built by IHS Towers 2015-2020
Figure 2: Capex by IHS Towers 2017-2020
Context for the IPO
The timings for an IPO are good with global towerco M&A still active, some big towerco IPOs planned, and financial markets recovering healthily from the lows of March 2020. For example, in their May 8, 2020 earnings call Cellnex’s CEO Tobias Martinez Gimeno said “in our view, the M&A process will allow us also to double the size of [Cellnex] in the next coming 3, 4 years from now.” This wave of M&A was funded by a €4bn rights issue which was highly oversubscribed.
The other big towerco IPO in the offing is Vodafone’s Vantage Towers, which announced a planned 2021 listing in Frankfurt. The IPO looks to be comparable in size to IHS Towers with the group managing expectations that the IPO would be priced “lower” than €10bn. That would value Vantage Towers at less than 14x its US$680bn EBITDA.
But perhaps the most useful comparators for IHS Towers are Africa’s two other independent towercos, Eaton Towers and Helios Towers. In 2019 Eaton Towers signed a deal for acquisition by American Tower and Helios Towers listed on the LSE.
A direct comparison is possible, but it is still only a starting point. Firstly, IHS Towers has since diversified into two new regions and credibly committed to entering new markets outside of Africa, something Eaton Towers and Helios Towers did not. Secondly there is very little overlap between those three independent towercos with IHS Towers active in zero Helios Towers markets and zero ex-Eaton Tower markets. There are similarities between the DRC and Cameroon, but they remain distinct markets with distinct sites and contracts managing each towerco’s sites.
On the 30th May 2019 American Tower announced its deal to acquire Eaton Towers. American Tower agreed to pay US$1.85bn for Eaton Towers. Eaton Towers’ 5,510 sites in Burkina Faso, Niger, Ghana, Kenya and Uganda were valued at $336k each. Eaton Towers tenancy ratio at the time of the deal was 1.5x and EBITDA of US$140mn, meaning the towerco was valued at a multiple of approximately 13.2x. On the 15th October 2019 Helios Towers went public. The towerco went public at a 10.3x EBITDA multiple against its Q2 2019 adjusted EBITDA of US$201mn. At the time of the IPO Helios Towers owned 6,845 sites in Tanzania, DRC, Ghana, Congo B and South Africa, those towers were given a valuation of US$302k at IPO. Since the IPO Helios Towers’ shares have traded up from 115p to a high of 223.85p.
EBITDA multiples can be useful for comparing towercos, and across the page you will see Moffat Nathanson’s towerco valuation benchmarks (Figure 3). An EBITDA is a measure of profit before accounting for interest, tax, depreciation or amortisation, and gives a good measure of how cash generative a company is.
The world class towercos of the United States trade at EBITDA multiples in the range of 31.1x-32.4x because of the nature of the contracts they hold with US operators, their inbuilt escalators and their simpler grass and steel operations. Looking at multiple elsewhere shows a spread from low multiples for developing world, MNO-captive towercos like Bharti Infratel, to higher multiples for independent, developed world towercos like Cellnex.
Looking at Eaton Towers at acquisition and Helios Towers at IPO and today gives us some potential benchmarks for IHS Towers. Helios Towers started listed life at a 7.2x EBITDA multiple and now trades at 12.1x, Eaton Towers’ investors achieved an exit at 13.2x. Using the mid-point of IHS Towers potential 2020 EBITDA of US$740mn, gives a low range of US$5.3bn, a mid-point of US$9bn, and an Eaton multiple matching of US$9.8bn.
Figure 3: MoffatNathanson’s Towerco Valuation Benchmarks, August 25th
What’s next?
In IHS Towers’ existing markets, macro indicators and telecom trends favour the operator. Highlighting trends from 2019 to 2024 shows why IHS Towers thinks now is a good time to go public. The population in its nine markets will grow from 594mn to 644mn, and maintain its median age of 20 years old. Mobile penetration should also leap from 94% to 101% of this larger population over the same period. While 5G growth will be limited outside Kuwait, in IHS Towers’ other markets 4G penetration should grow from 17% to 41% creating new opportunities for BTS and amendment revenues. All in all, an additional 36k towers and 101k points of presence are predicted across IHS Towers’ markets.
New opportunities also abound for a mature towerco. While IHS Towers is careful to not make forward looking statements, TowerXchange is free to suggest which opportunities look most promising for the towerco. M&A in Africa has slowed in recent years, but Helios Towers’ acquisition of 1,200 sites in Senegal are a sign of things to come. 60% of Africa’s towers remain in MNO hands, and while a significant proportion will ultimately be managed by ESCOs, there are a number of portfolios which will need to be sold as MNOs look for capital to invest in 4G rollouts. Ethiopia is the largest opportunity in Africa, and one which a number of towercos have been linked to already. MNOs still plan to take two new mobile licences this year, and still plan to work with a towerco partner to deploy capital into passive infrastructure.
IHS Towers has made its intention to be a global towerco clear, so there are also opportunities in other markets which we should highlight. In Egypt the NTRA is poised to award a towerco and an obligation to build 6,000 new sites, a mammoth task and one suited only to towercos which start with substantial scale. The Philippines has been a duopoly for many years, and recent reforms have opened up the country to a third mobile operator and to international infrastructure providers, another market that requires 1,000s of new sites. Finally, IHS Towers’ entrance to the Americas may offer it the opportunity to apply its expertise in power to a whole new continent. Power in the Americas has long laid with MNOs, with towercos an exclusively grass and steel business. That is now changing, with RFPs issued which require towercos to manage power. Could this be a competitive advantage for an outsider to the region?
IHS Towers did not give a timeline for any IPO, nor announce the number of shares to be offered nor price range of the proposed offering. However, advisors have been appointed and have been working on the deal for some time, and there is a good chance the IPO will be completed soon. In the medium to long term there are many opportunities ahead for IHS Towers. Watch this space.
