How Etisalat Nigeria accelerated the tower sale process and realised a good valuation

In this exclusive interview, TowerXchange speaks to Andrew Kemp, CFO of Etisalat Nigeria. Andrew was executive sponsor of Etisalat Nigeria’s recent sale of 2,136 towers to IHS Africa. Andrew had advocated the disposal of previously outsourced towers to unlock the value of co-location, and he oversaw a process that enabled Etisalat Nigeria to bring their towers to market first, securing one of the highest valuations per tower on the African continent.

Launched in 2008 as the fourth GSM operator to come to market in Nigeria, Emerging Markets Telecommunication Services (EMTS) trades as Etisalat Nigeria and is a 40-30-30% partnership between Etisalat, Mubadala and a consortium of Nigerian investors.

TowerXchange: Tell us about your role in the transaction, and what motivated you to do this deal now?

When I joined Etisalat two years ago as CFO, I looked at our balance sheet and felt we had trapped a lot of value by outsourcing rather than disposing of our towers. At the time Huawei, Nokia and IHS managed our towers, and I felt this structure failed to unlock the co-location revenue opportunity.

Etisalat had previously tried to sell all our towers across sub-Saharan Africa as a portfolio transaction, an ambitious plan which required the buy-in of so many different stakeholders that it ultimately proved too complex to complete.

However, I remained an advocate of divesting our towers to drive network rollout and QoS improvements, and I started to get some traction in the second half of 2013 after extensive analysis of our tower asset options and engagement with key stakeholders. I became the executive sponsor of the transaction, and made a case to the Board that if we could put ourselves in the mix for bidding on Nigeria’s towers, then we could optimise the valuation of the portfolio. The Board approved the strategy in December 2013.

So Etisalat Nigeria were the last to start the tower sale process, but the first to close.

TowerXchange: Given that around a year ago it became apparent that Airtel had switched from a strategy to launch their own towerco to instead divesting their African towers, which prompted MTN to bring their Nigerian towers to market, what were the keys to expediting Etisalat’s transaction to bring your towers to market first when you started the process last?

My team and I had a strong execution focus. We quickly secured stakeholder engagement, and created a detailed project plan with small deadlines and milestones, such as getting an MOU out in good time, and allowing adequate time to set up the virtual data room. The motivation to get to market first galvanised the business to respond, and I had a very supportive Board whose approval was required at several milestones.

We also had some practical advantages. We were only selling 2,136 towers as we have been co-locating on independent towers for many years. All our sites were less than five years old, so site documentation was more complete than one might imagine for portfolios up to twelve years old.

I should also give credit to a very strong advisory team who supported this transaction. We engaged Standard Bank as advisers, and Norton Rose Fulbright as our lawyers. We took some tax advice from PwC and accounting from KPMG. Lagos law firm Banwo&Ighodalo were also an important part of the team.

I have a personal rule with complex transactions like this that I don’t negotiate by email. So we got everyone into the office for seven solid days to break the back of the drafting of the deal. Thanks to the pragmatism of both buyer and seller, we got 90% of the work done in that time, which made subsequent approvals and scheduling easy. A transaction like this must be led by business people.

TowerXchange: Can you confirm a few details of the deal – is a pure sale and leaseback or has EMTS retained any equity?

It’s a 100% pure asset sale.

TowerXchange: Appreciating the financial terms of the deal are not in the public domain, can you give us some guidance on the valuation you achieved?

You’re right that the purchase price is not in the public domain. We remain pleased with an outcome which balanced cash released with ongoing operating costs in line with the market and a strong commitment to quality of service.

TowerXchange: Have EMTS sold all your sites to IHS?

For now we’ve retained c600 sites and are looking at options for some of those sites. We’ll certainly keep the data centres, media gateways and BSCs – they won’t pass over to the towerco, but they will continue to manage those sites.

TowerXchange: Is power passed through, or is IHS assuming responsibility for energy equipment and logistics?

IHS are buying all the DGs, batteries et cetera. They’re providing a full service and they’ll be responsible for diesel, site security, community relations and environmental issues.

TowerXchange: I read that Etisalat Nigeria were exploring hybrid and renewable energy solutions a year or so ago – did those investments materially affect the valuation of the assets?

We did evaluate and deploy some renewable energy solutions for lower power consumption sites a year or so ago, but it wasn’t a significant enough programme to have a material effect on the valuation of the portfolio. We looked at higher power consumption sites too but found renewables were less effective for media gateways and BSCs.

However, once we made the strategic decision to sell our towers, we de-prioritsed our focus on renewable energy recognising this would become a towerco responsibility post any sale. Under the terms of our deal IHS will invest significant capex over next two years to harmonise power provision with their existing sites.

TowerXchange: Were American Tower interested in Etisalat Nigeria’s towers? If so, were they prepared to offer a tower+power full service?

American Tower were interested and they were prepared to provide tower+power. We went to visit them in Uganda and saw some innovative and impressive approaches to both security and power.

Both IHS and American Tower’s offers were compelling propositions, but in the end IHS’s existing capabilities in Nigeria suggested they could provide a lower risk transition.

TowerXchange: Given that Etisalat Nigeria has the best QoS in the country, you’ve set the bar fairly high for IHS, what are your KPIs around QoS and availability?

Our SLAs are fairly simple with a focus on passive uptime. We know IHS are capable of 99%+ availability on their own sites, so that’s what we’re asking for going forward.

TowerXchange: What are the implications of the tower sale for the restructuring of any internal competencies and teams concerned with passive infrastructure?

There are no people moving from Etisalat Nigeria to IHS in this deal. Since inception, Etisalat Nigeria have had Huawei, Nokia, IHS and their subcontractors operating our sites, so those capabilities have largely resided on their payrolls even before the tower sale. Etisalat Nigeria still maintain a modest team to manage and monitor network performance, all that changes is who is doing the work; now it’s more IHS and less Huawei and NSN.

TowerXchange: How are your existing managed services contracts with Nokia and Huawei going to be transitioned?

Some of our managed services contracts were up for renewal, so we were able to anticipate that with the timing of this transaction. However, in some cases more substantive contract restructuring will be necessary. The details will be agreed through a tripartite transition plan between Etisalat Nigeria, IHS and our current managed services partner in which we’ll examine each service in turn and, where appropriate, transition those from out current managed service provider to IHS.

TowerXchange: How have you structured the deal with IHS to facilitate Etisalat’s ongoing 3G rollout?

IHS understood Etisalat Nigeria requirements for further growth and flexibility to enable us to maintain our reputation as having the best network in Nigeria and for data quality in particular. These factors have been contemplated in our agreement with IHS.

TowerXchange: Did your deal with IHS include a BTS programme? How do you anticipate the BTS market evolving as towercos acquire an ever-increasing proportion of Nigeria’s towers?

There was no BTS programme incorporated into our deal with IHS, although we could construct one should it be required.

However, we’re currently working on the premise IHS will be able to close another deal with a major Nigerian MNO, in which we’d be encouraged to take more space on existing sites to which we haven’t previously had commercial access.

One of the impacts of Nigeria’s towers changing hands is that our radio planning needs to be driven by a more integrated and collaborative approach. Economics are going to be driven by colocation on the nearest available site, not by building a new site at a specific grid reference.

TowerXchange: How are Etisalat Nigeria going to manage the relationship with IHS post-sale?

We had already started a migration to a contract manager structure, so that won’t change dramatically. We’ll ensure our regular executive governance meetings with IHS work to the fullest extent.

To learn more about Etisalat’s tower strategy, the company’s Head of M&A Tim Knowles will be a panelist at the TowerXchange Meetup Africa, taking place on October 20 and 21 2014 in Johannesburg. For more details visit www.towerxchange.com/meetups/africa