Daniel Lee recently left Citi to form Intrepid Advisory Partners - an independent advisory firm focused on the tower industry. At Citi, Daniel oversaw the firm’s tower activities across EMEA and led the sale of the vast majority of tower transactions in Africa to date, advising mobile operators such as MTN, Millicom and Cell C, Additionally, Daniel worked closely with a number of independent tower operators. Daniel is a member of the TowerXchange “Inner Circle” network of advisers.
TowerXchange: How did you become the “go to guy” for emerging market tower transactions?
Daniel Lee, Managing Director, Intrepid Advisory Partners:
Thank you for your kind words. At Citi, I was fortunate to have advised on the first tower transaction in Africa. Shortly thereafter, we announced another tower transaction for another client. As a direct result of these experiences we started working with yet another client and advised them on a series of transactions. Consequently, I ended up being fortunate to have advised on the vast majority of tower transaction in Africa - advising on eight transactions in total (always representing the Seller) across multiple different markets. Without the earlier success, I am pretty doubtful I would have had the opportunity to have advised on some of the later transactions.
TowerXchange: What were the main differences between the established North American tower industry and the emerging African tower industry, and how was the business model adapted?
Daniel Lee, Managing Director, Intrepid Advisory Partners:
As you point out, the business models are in totally different phases in the two markets. The business model is obviously well developed in the US. In Africa, it is still very early days. While certain markets such as Ghana have multiple independent tower companies actively operating, the reality is the vast majority of markets across Africa do not have a single tower company operating.
Additionally, the operating realities of Africa have brought about an evolution of the tower model to suit the requirements of African mobile operators. First and foremost, grid power is not as reliable in Africa as it is in North America. Consequently, maintaining “uptime” is much more of a challenge with operators employing a range of auxiliary measures ranging from generators, solar panels and deep cycle batteries to supplement grid power. As a result, when mobile operators seek to outsource their towers, they generally tend to want to push this responsibility to tower companies.
without a doubt there is still significant opportunities for new market entrants in Africa. The vast majority of African markets do not have even a single tower company operating. However, new entrants do face significant challenges
TowerXchange: Are there still opportunities for new market entrant towercos in Africa?
Daniel Lee, Managing Director, Intrepid Advisory Partners:
Yes - without a doubt there are still significant opportunities for new market entrants in Africa. Again, the vast majority of African markets do not have even a single tower company operating. However, new entrants do face significant challenges. The first is a lack of any experience operating in Africa, while the independent tower operators already present in Africa continue to grow / add additional expertise. The second challenge is to attract investors who probably have already had the opportunity to invest in towers but for one reason or another ultimately decided not to do so.
TowerXchange: What will be the criteria for infrastructure funds to become interested in African towers?
Daniel Lee, Managing Director, Intrepid Advisory Partners:
Infrastructure funds are very active in the tower space and a number of funds have explored deals in Africa. In general, infrastructure funds tend to focus on investing in predictable businesses with an infrastructure element which acts as risk mitigant. Passive infrastructure obviously ticks the infrastructure element. The long-term customer contracts which characterises the tower industry definitely provides stability. However, in Africa it is still early days and there is a fair amount of execution risk for independent tower operators to achieve their business plans. For example, when infrastructure funds consider an investment in a toll road, they might get comfort from a third-party study assessing traffic flows. There is no similar exercise that I am aware of, that infrastructure funds can get comfort regarding the projected third-party lease-up for a tower investment which only has a single tenant day one. Consequently, despite generally having lower return expectations, infrastructure funds to date have not gotten comfortable with today’s execution risk.
TowerXchange: The prevailing opinion seems to be that first mover operators are realising a good price for their towers - what’s your view?
Daniel Lee, Managing Director, Intrepid Advisory Partners:
Obviously, I’m a bit biased but I believe the mobile operators I have advised have secured very attractive deals. To answer your question is actually a bit more challenging than might appear. It is very difficult to compare one deal to another without the full set of facts. Generally, people tend to focus on the headline metric of price per tower. However, this totally ignores the ongoing commercial relationship between the tower company and mobile operator governed by the Master Lease Agreement (“MLA”). This is a huge element to the transaction and the variances in MLAs between deals can be tremendous. The amount of rent the mobile operator contractually commits to paying for x amount of years obviously has a huge impact on the price. The used space and other rights / restrictions the mobile operators has also may materially impact pricing.
TowerXchange: What do you see next in the African tower industry?
Daniel Lee, Managing Director, Intrepid Advisory Partners:
The sector in Africa will continue to be very active. I believe the volume of transactions in the future will increase. To your earlier question, I see additional new entrants attempting to break into the market. After a hyper-growth phase which I envision will last for at least the next 3 years, like all other industries I see another period of consolidation. Ultimately, there will be winners and there will be losers. It will be interesting to see how things play out.
Daniel Lee will be hosting workshops on attracting investment and on structuring sale and leaseback transactions at the TowerXchange Meetup Africa 2013 in October - for details, click here.
