To date, potential tower divestments by tier two operators in sub-Saharan Africa have failed to attract the interest of the continent’s towercos. The sale of Expresso Telecom’s 450 Senegalese towers to newly formed towerco, Al Karama Towers, represents a landmark transaction for two reasons. Not only is it the first tower deal in Senegal, but it also represents the first tower sale by a tier two operator for five years. TowerXchange speak to Al Karama Towers investors, M&A Capital to learn more about this new towerco set to enter an underexplored area in the sub-Saharan tower industry.
TowerXchange: M&A Capital have just announced the acquisition of Expresso Telecom’s 450 towers in Senegal and in doing so, created the first independent towerco in Senegal - Al Karama Towers (AKT). Please can you provide an introduction to the fund and how the deal with Expresso Telecom in Senegal came about?
Moctar Sarr, Associate Director, M&A Capital:
M&A Capital is a Dakar based investment company. M&A Capital is focussed on investments in Western and Central Africa and also carries out transaction advisory services. The company has a strong footprint in the region’s telecommunications sector with money at work in a local MNO as well as an ISP in Gabon and has plans to invest in an ISP in Burkina Faso and acquire a stake in an MNO in Guinea.
M&A Capital is also focussed on Agri Business, IT/services, financial services, with an approach that includes taking both majority or minority stakes, however we undertake strong involvement in company strategies.
We started looking at the tower industry about three years ago, speaking closely with one major actor based in Dubai to better understand the market and develop our knowledge of the business environment and the key stakeholders in it. This market study led to us starting conversations with Expresso Telecom in 2014 who at the time were looking to sell their Ghanaian operations and raise capital for their Guinean opco. We expressed a strong interest to Expresso in acquiring their towers as a means for them to pursue their proposed operations strategy and made an offer in January 2015, which was rejected by Expresso.
In 2016, the regulator in Senegal announced they were making available 4G licenses, and Orange subsequently became the first operator to obtain a license. The other MNOs in the country expressed an interest to follow suit, and our ongoing discussions with Expresso could lead to helping them to acquire the 4G license and optimise future rollout for network resizing.
We opened a second round of negotiations with Expresso regarding their Senegalese towers about six months ago and an agreement was reached at the end of Ramadan, with a formal agreement signed on 20 July 2016.
Figure one: Ownership of Senegal’s 3,350 towers
TowerXchange: Please can you share the details of the agreement and when do you expect the deal to close?
Moctar Sarr, Associate Director, M&A Capital:
We have agreed a sale and leaseback arrangement to acquire Expresso Telecom’s 450 towers in Senegal. With Expresso’s license due to expire in 2026, the legal terms of the leaseback agreement are for an initial ten year period, but as Expresso expect to extend their license we plan for this to extend to 17 years.
In addition to acquiring Expresso’s portfolio of towers, we will also have first right of refusal for any new build by the MNO, with Expresso planning to significantly increase their site count in the next 24 months.
We started the due diligence process on 26 July which will last for five months. Simultaneously we are going through the necessary regulatory procedures to get approvals from the Ministry of Finance and the Ministry of Telecommunications. We expect to close the transaction in November of this year.
TowerXchange: Have you already appointed a management team to run Al Karama Towers?
Moctar Sarr, Associate Director, M&A Capital:
A former IHS Executive has been involved in the transaction and he will most likely become the CEO of the newly created towerco. He has a fantastic level of experience and is the perfect person to run the new business.
It will be the new CEO’s responsibility to recruit the rest of the management team, however with M&A Capital having a number of investments in the region’s telecommunications industry already, we also have a good knowledge of the sector and strong relations with key executives in the market.
In addition to putting in place a management team, we are in the process of assigning technical partners and have made sound progress in this field.
TowerXchange: What are the attitudes of Senegal’s operators towards infrastructure sharing and what level of infrastructure sharing has there been to date?
Moctar Sarr, Associate Director, M&A Capital:
There are three MNOs in the Senegalese market - Sonatel (owned by Orange), Tigo and Expresso Telecom. In addition to Expresso’s 450 towers, Sonatel owns approximately 2,100 towers and Tigo owns 800.
To date, infrastructure sharing between the operators has been very limited, but attitudes are starting to change. A year ago it was a dream to move into sharing, however MNOs have since opened the door and some operators are now sharing a limited number of towers. All the MNOs in the market are now looking at ways they can optimise their opex to reach shareholders expectation.
TowerXchange: Do you see a role for Al Karama Towers in new build programmes on behalf of Orange and Tigo as well as Expresso?
Moctar Sarr, Associate Director, M&A Capital:
We hope so! A little while ago, the regulator mandated that all operators increase coverage to underserved areas of the country and as such there is significant potential to participate in the new build that will accompany this. The next rollout program planned by Expresso in the next 24 months is driven by this regulatory mandate. We hope other MNOs will join us in this rollout strategy as we believe that we believe our offering is more cost effective than what they have now.
TowerXchange: What potential do you see for co-locations on the towers that you have acquired from Expresso?
Moctar Sarr, Associate Director, M&A Capital:
The widespread implementation of 4G in the market (which would have presented opportunities for additional tenancies) has stalled somewhat, with Sonatel being the only operator to have been awarded a license. Even without this 4G however, there are a number of strong opportunities for co-locations.
Firstly, there is a high level of parallel infrastructure in Senegal; within 100m you will find towers belonging to all three operators. Our first port of call will be to approach Tigo regarding their towers that are in close proximity to Expresso’s towers and convince them to decommission those towers, put their active equipment on our towers, and reduce opex.
There are also two key events on the horizon which will add significant potential for extra tenancies. The first is in relation to the award of additional universal service licenses which are designed to bring coverage to areas underserved by the current MNOs… In addition to the universal service licenses, the government also plans to award two or three ISP licenses, thus creating additional non-traditional tenants. These two steps by the government create a healthy market for co-locations
There are also two key events on the horizon which will add significant potential for extra tenancies. The first is in relation to the award of additional universal service licenses which are designed to bring coverage to areas underserved by the current MNOs. The first license was awarded to an entity called Hayo which operates in the Matam region of Senegal and uses towers owned by Orange and Expresso to rollout its network. The government is now set to award a second universal license, this time to the Kedougou region, and further universal service licenses are expected to be awarded in other regions. In addition to the universal service licenses, the government also plans to award two or three ISP licenses, thus creating additional non-traditional tenants. These two steps by the government create a healthy market for co-locations.
TowerXchange: Do you foresee Tigo and Sonatel divesting their towers in Senegal? Is an acquisition of such portfolios something that is in AKT’s (Al Karama Towers’) business plan?
Moctar Sarr, Associate Director, M&A Capital:
Our current business plan in Senegal is based solely on the acquisition of Expresso’s towers but should Tigo’s or Sonatel’s towers come to market we definitely would be interested.
Tigo have been open minded regarding divestment of their towers in other countries and so we think that to be much more likely a transaction in the more immediate term than a tower sale from Sonatel. Sonatel have reportedly been looking into a sale of their towers and in speaking to the finance community in the country we understand that a small group of suppliers which had been doing maintenance on the Sonatel towers had tried to acquire them but the transaction didn’t get off the ground.
AKT “ Al Karama Towers” plan is to get to a critical size, say 1,000 towers and then this would better position us to partake in a deal with Sonatel should their towers come to market. In the next two years we expect to get to 650 towers, combining the acquisition of Expresso’s towers and their new build requirements and an new acquisition of other MNOs or ISP’s structures would take this number to around 1,200.
TowerXchange: What is AKT “ Al Karama Towers” broader and more long term vision? Do you foresee the company expanding into other markets?
Moctar Sarr, Associate Director, M&A Capital:
Whilst our current focus is on closing the Expresso deal in Senegal, our ambitions and vision are much further reaching.
When you look at West Africa, there are three major MNOs; Airtel, Orange and MTN, and then a whole host of tier two MNOs. A number of these tier two operators have an appetite to outsource to, or partner with towercos, but the appetite from the ‘Big Four’ towercos in sub-Saharan Africa is just not there. There is a pressing need for a towerco whose business model is focussed around the tier two operators and Al Karama Towers plan to fill this void.
In 2017 we are plan to look at opportunities with smaller MNOs in Mauritania, Mali and Burkina Faso. Benin and Togo are on our horizon, although we are not yet 100% decided, whilst tier two operators in Gabon, Congo Brazzaville and the Central African Republic are key players we plan to target.
Moctar Sarr will be joining the speaking faculty at the 4th Annual TowerXchange Meetup Africa & Middle East, taking place on 19-20 October 2016 at the Sandton Convention Centre, Johannesburg
