Cellnex enters the Polish market with the acquisition of 7,000 Play sites

Cellnex has added a ninth country to its European operations after striking a deal with Iliad to acquire a 60% stake in the new entity that will operate Play’s 7,000 towers in Poland. Iliad announced a takeover of Play in late September, with the deal set to complete by the end of November; the Cellnex deal is expected to close by Q221. Cellnex will invest €800mn to acquire the stake, with the new Polish towerco expected to invest up to €1.3bn over the next 10 years, rolling out up to 5,000 new sites. TowerXchange takes a closer look at the deal.

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On 23 October, Cellnex announced that it had reached a deal with Iliad to acquire a controlling 60% stake in Play’s 7,000 sites tower portfolio for a total of €800mn. The deal marks the fourth country in which Cellnex have struck tower deals with Xavier Niel’s European telecom empire, with Cellnex having acquired Iliad’s towers in France and Italy (with Iliad trading as Free Mobile in the former) and Salt’s tower portfolio in Switzerland. Whilst Iliad’s takeover of Play is not yet finalised (the deal having only been announced in September), Play had stated its intent to sell its tower portfolio earlier in the year, meaning towercos had begun to circle to the assets and the Polish market ahead of Iliad’s involvement. With Iliad having pursued a strategy to monetise its passive infrastructure in its other European markets (Iliad are also shareholders in Ireland’s eir which recently divested its tower portfolio to Phoenix Tower International), their takeover of Play was never likely to derail the process.

Cellnex will acquire a 60% controlling stake in the company that will operate Play’s 7,000 sites with Play (set to be owned by Iliad) owning the remaining 40%. The deal follows a similar structure to Cellnex’s transaction with Iliad in France, whereby Cellnex paid €1.4bn for a 70% controlling stake in Free Mobile’s (Iliad) 5,700 site French portfolio, with Iliad retaining a 30% stake. In the French deal, Cellnex agreed a build-to-suit commitment of up to 2,500 new sites through to 2027; whilst the deal with Poland does not include a BTS commitment, the new Cellnex controlled towerco could invest up to €1.3bn over the next 10 years to rollout up to 5,000 new sites.

Cellnex’ estimated additional EBITDA –under IFRS16 standard and once both the initial acquisition and the rollout of the new sites have been completed– will be €220 million, while Recurring Leveraged Free Cash Flow (RLFCF) will rise by €160 million. Cellnex’s backlog of contracted sales, taking into account the 20 years —extendible by a further 10— agreed for the provision of services from Cellnex to Play, will increase €6 billion for the group, bringing the total to €53 billion.

The transaction will be financed with available cash and the deal expected to close in Q221.

The deal marks the first major tower transaction in the Polish market, Eastern Europe’s largest economy with a population approaching 40 million. The country has exhibited strong economic growth with GDP growth averaging 4.2% for the past five years, has low and declining unemployment, and a stable currency showing limited fluctuation against the Euro over the past five years. The country has a competitive mobile market with 52 million subscribers, four MNOs (figure one) and over 80 MVNOs. Like other developed mobile markets, subscriber growth and ARPUs have been stagnating in recent years and with high Capex (figure two) and major investment on the horizon, MNOs have been forced to consider ways to manage their infrastructure more cost effectively.

Figure one: MNO market share in Poland

[Source: Fitch Solutions]

Figure two: Operators revenue (PLNmn) and capex (% Of revenue), 2019

Source: Fitch Solutions

There are approximately 27,000 towers in the Polish market, of which around 40% are understood to be ground-based towers. T-Mobile and Orange share passive and active infrastructure in Poland through 50-50 joint venture NetWorkS! While NetWorkS! operates around 13,000 towers, the assets remain on T-Mobile and Orange’s own balance sheets. Initiated in 2011, the partnership was intended to last 15 years, but there has been speculation that one or both parties might wish to exit the venture and sell towers to a third party.

T-Mobile is 100% owned by Deutsche Telekom, with Deutsche Telekom recently announcing that its infraco, Deutsche Funkturm will look to expand beyond its German borders and start to consolidate assets from its other international opcos under the GD Towers business unit. Deutsche Telekom has already carved its 3,000 Dutch towers into a newly created infraco, Telekom Infra, with the Austrian towers expected to be carved out next. Whether the operator has plans for its Polish assets remains to be seen.

Orange has announced plans to carve out its French and Spanish towers into separate towercos and hinted that they may look to roll out the strategy across other markets. Whilst Orange is yet to reveal any plans for its Polish towers, the operator is reportedly looking to sell up to a 50% stake in its Polish fibre business, with the stake expected to fetch north of €1bn.

Cyfrowy Polsat’s telecoms business, Polkomtel (trading as Plus) has also revealed that it is undertaking a strategic review to explore the sale of up to 100% of its tower unit, Polkomtel. Sources suggest the unit is valued in the region €1-1.3bn with the company’s total site count expected to be around 7,000 towers.

Whilst Cellnex is the first independent towerco set to reach significant scale, they are not the first towerco to operate in the Polish market, nor does the deal mark the first tower transaction. American Tower quietly entered the country earlier this year with a small-scale acquisition, giving them boots on the ground, the opportunity to develop a local supply chain and an understanding of the local dynamics ahead of any tower sale activity. Whilst American Tower may have missed out on Play’s sites, one can expect the giant to maintain a keen interest in future tower portfolios that come to market.

In addition to American Tower and Cellnex, broadcast towerco Emitel is active in the Polish market, with the company managing a portfolio of 377 sites. Acquired by Alinda Capital Partners in 2013, Alinda have reportedly been looking to exit their investment, with rumours surrounding a potential IPO having emerged in February of this year. No further developments have since been reported.

Figure three: Poland – estimated tower ownership

Cellnex’ acquisition of Play’s sites will add a ninth country to the towerco’s operations (figure four). The company has been on a major M&A drive in the past 18 months (figure five), with them showing no sign that they are slowing. At the time of their €4bn capital increase in the summer, Cellnex commented that they were “actively analysing market opportunities for an aggregate amount of up to €11bn”; their deal with Play marks the first of those opportunities.

In terms of future M&A activity, Cellnex has been clear that it will only consider opportunities where they can secure a majority and controlling stake in the entity. Whilst certain MNOs in the European market are currently considering selling just a minority interest in their newly created towercos, there are others looking to crystallise the full value of their assets and one can expect Cellnex to be a serious contender in any such transactions.

Sources suggest that CK Hutchison’s portfolio of 24,800 sites are very much in Cellnex’ crosshairs with news expected from the two parties this year. Whilst such a deal would account for the majority of the €11bn opportunities that Cellnex have spoken of, several other major operators in the European market are considering options for their tower portfolios presenting further potential M&A activity. On top of this, Cellnex will continue to consolidate its position in existing markets, adding complementary assets through potentially the roll-up of smaller towercos in the market and continuing to build out new sites.

Figure four: Cellnex’s pan-European footprint (Q2 2020)

*Deal announced, not yet closed

 

Figure five: Cellnex’ history of tower transactions