As emerging market towercos are getting bigger, as tenancy ratios are growing, as the pipeline of future opportunities is becoming more visible and those opportunities are getting bigger, so the pool of interested investors is swelled by bigger companies able to write bigger cheques.
If you’ll forgive my gross over-simplification, there’s an important point here; emerging market towers are coming of age as an asset class. Where once when a new investment firm created an account at www.towerxchange.com I often had to look them up because they were smaller, pioneering early stage investors that I hadn’t previously encountered, now TowerXchange’s research is being read by Macquarie, Providence Equity, Berkshire Partners, The Carlyle Group, Goldman Sachs and a growing number of sovereign wealth funds. Investors with deeper pockets. TowerXchange’s research into emerging market towers is being tracked by over 200 investment firms, indicative of a growing appetite for African, Latin American and Asian towercos.
Only a couple of years ago it was a shallow pool of investors who had an appetite for early stage equity investments in emerging market towers. The application to Africa of a business model that had generated outstanding returns in the US since the 1990s was viewed as an interesting but unproven opportunity. Investors are now increasingly comfortable with the performance of African towercos, and how they have diversified country and counterparty risk as they have scaled.
A couple of years ago the towerco business model was still taking root in Asia. Fantastic results were being delivered by Protelindo and Tower Bersama, albeit with restrictions on foreign investor’s access to Indonesian opportunities, but little was happening elsewhere in Southeast Asia. The restructuring of the Indian MNO market after the cancellation of licenses had all but frozen the pipeline of tower opportunities in India. Now the Indian tower industry is reinvigorated, and the pipeline of opportunities is flowing again. The towerco business model is starting to spread across Southeast Asia – towercos will be on the front lines of the Myanmar rollout, we’ve seen activity in Thailand and edotco’s launch will stimulate multiple countries, hence the launch of a TowerXchange Meetup for Southern and Southeast Asia in December.
Meanwhile, there has been consistent appetite from international and local equity investors for tower opportunities in LatAm, where the biggest challenge can be for PE-backed entities to secure assets in competition with trade buyers. It may be tough to win an opportunity up against AMT and SBA in Brazil, but TowerXchange are seeing growing investor interest in other South and Central American markets.
In the two years that TowerXchange has been reporting on the emerging market tower industry, investor appetites for emerging market towers have steadily increased. Why?
There is growing confidence in the adaptability of the towerco business model to emerging markets
Emerging market towercos are delivering against the growth expectations suggested by their business plans
There is increased visibility of a pipeline of future opportunities; TowerXchange is tracking over 31,000 towers coming to market in Africa, a similar number in LatAm and Asia, and those opportunities are looking more and more substantial (e.g. Airtel’s African towers)
Towercos are diversifying of country and counterparty risk as they drive toward scale
Perhaps the greatest endorsement of emerging market towercos as an asset class is the sustained involvement of early stage investors, who continue to participate in later rounds of capital raising – always a healthy sign.
Perhaps the greatest endorsement of emerging market towercos as an asset class is the sustained involvement of early stage investors, who continue to participate in later rounds of capital raising
One by-product of the growing appetite of larger international investors and continued participation of early stage investors is a narrowing window of opportunity for local investors. For example, equity investors probably need to be able to write a US$75mn+ cheque to be of much use to the larger African towercos, which means that local investors may need to form syndicates to participate in these opportunities.
I don’t want to make it sound like it’s easy to raise capital for emerging market towers – it’s still a capitally intensive business and there’s a finite amount of leverage that can be used.
Below the private equity layer, a shortage of debt finance and an almost complete absence of angel and VC investors, certainly in Africa, represent challenges to new entrants and middle market towercos seeking capital in order to grow beyond opportunistic build to suits and to compete for the larger sale and leaseback opportunities.
In summary, while capital may not yet be a commodity for emerging market towercos, bigger cheques are becoming available, larger firms are coming to the table (witness Providence Equity’s recent investment in Helios Towers Africa and AIIM’s in IHS), and a number of infrastructure and sovereign wealth funds are starting to monitor the market, in some cases already actively investing – offloading to such funds might offer a third alternate exit strategy alongside IPO or trade sale. We’ll leave our investor panel report to take on this discussion and delve deeper into those exit strategy options.
