In October 2016 Cellnex announced the acquisition of 100% of Shere Group for €393mn ($440.67mn), trebling their number of sites in the Netherlands from 261 to 725 through the addition of 464 Shere sites and acquiring a small but healthy portfolio of 540 sites in the UK. Integrating Shere’s assets will provide estimated annualised revenues of €29mn, two thirds of which are derived from the Netherlands and a third from the UK.
Cellnex have undertaken a series of growth investments in Europe over the past two years, deploying approximately €1.4bn. This means that at present almost 40% of company revenues are generated outside Spain. A solid asset, the Shere Group deal puts the organisation in a strong position, Cellnex CEO, Tobias Martinez stating that, “Once we complete the acquisition of Shere, will have a backlog (contracted sales for the coming years) of €8.4bn.”
Jack Colbourne, Partner at Arcus, lead asset manager and board member for Shere commented, “Arcus personnel have been involved in Shere going right back to its inception in 2004, and we have supported the same management team throughout that period as the company grew by more than 10 times in terms of revenues and cashflow. We have played an active role in shaping the direction of a company which operates within a niche infrastructure sector that is both fast growing and constantly changing. We are extremely pleased with how Shere has developed over our period of ownership.”
TowerXchange also put a few questions to Alfonso Álvarez, International Business Manager at Cellnex, about the deal.
TowerXchange: Congratulations on announcing the agreement to acquire Shere Group. What did you like about this company?
Alfonso Álvarez, International Business Manager, Cellnex:
A key driver in this acquisition has been the ability to further consolidate Cellnex’s position in The Netherlands, integrating a portfolio of assets which densify our network of sites, does not overlap with the assets being acquired from Protelindo and, last but not least, it contributes with a high tenancy ratio improving the overall portfolio’s quality.
Moreover, the fact that Shere Group involves as well a solid portfolio of greenfield as well as tower assets in the UK has been a positive externality that we assessed as a positive move as well and thus reinforced the case for the acquisition.
TowerXchange: This transaction sees Cellnex doubling down on your investment in The Netherlands - how much overlap is there between the Shere and the Protelindo towers? And how does the addition of the Shere sites impact the tenancy mix and tenancy ratio of the consolidated portfolio?
Alfonso Álvarez, International Business Manager, Cellnex:
The fact that there is no overlapping between Shere and Protelindo assets in The Netherlands has been featured as one of the drivers of this deal. As already underlined in the first question the addition improves both tenancy mix and ratio especially when we consider Cellnex Netherlands’s assets as stand alone. In terms of consolidated portfolio it improves the tenancy ratio but its impact is less visible as it represents a small piece of the whole Cellnex’s asset portfolio.
TowerXchange: The UK tower market is uniquely structured with around a third of the towers each split between MNO joint ventures CTIL and MBNL and an independent sector led by Arqiva, WIG, Shere and a handful of smaller towercos. How do you anticipate the competitive dynamics playing out between those stakeholders?
Alfonso Álvarez, International Business Manager, Cellnex:
It is difficult to assess. The UK market is quite attractive as it is one with the highest level of outsourced telecom infrastructure. The UK is the closest European market to the US benchmark. At the same time it looks quite stable with CTIL and MBNL as strong MNO’s joint ventures controlling a substantial portion of the tower market.
For sure there is a space for consolidation among independent operators, but the key driver for Cellnex in the case of Shere has been the consolidation in The Netherlands. Now we have a foot as well in the UK, which offers as visibility of the market and profiles us as a new actor. Beyond of this the whole market picture has not changed.
TowerXchange: What can you tell us about your operational management plans for the UK and Netherlands - have local country managers been appointed? Will the Shere Group management team be transitioning to Cellnex and playing a role?
Alfonso Álvarez, International Business Manager, Cellnex:
We are right now at the beginning of the integration process. As Cellnex’s footprint expands into new European markets the company does not only integrate assets, but it integrates mainly talent, market know how and management skills. So, yes, the Shere Group team will play a leading role managing operations in the UK and The Netherlands and will become a key part of Cellnex’s international management team.
TowerXchange: The MNOs, Arqiva and WIG have already rolled out DAS and small cells at some of the most obvious venues in the UK - how would you characterise the maturity of the small cell rollout there and where do you see opportunities for Cellnex?
Alfonso Álvarez, International Business Manager, Cellnex:
The DAS and small cells deployments are still in their first steps and consistently their business models are evolving as well. What we know is that the opportunity is there for the independent telco infrastructure operators as it seems reasonable to think that multi-operator approaches will play a role. This is valid for all European markets. What we can expect in terms of market potential, speed of deployment and time to market of the upcoming LTE generation remains still open, as it will be a process implying as well this kind of turn around of the involved business models.
TowerXchange: With CTIL making up around 34% of Shere’s UK business, what does the UK tenancy mix look like and how will it develop?
Alfonso Álvarez, International Business Manager, Cellnex:
Tenancy ratio of towers deployed on existing Shere’s UK sites is 1.6x as it has been reported. Organic growth prospects will be monitored as in any other market in order to improve key "productivity" indicators.
The TowerXchange Viewpoint
Although the ‘closed doors’ nature of this deal meant it came as a surprise to the industry, acquiring Shere Group seems a natural step for Europe’s most acquisitive towerco, Cellnex. Given the size of their portfolios in Spain and Italy (7,413 and 7,725 towers respectively), Cellnex thrive in the position of key market leader and won’t be satisfied with a handful of towers in a market unless it opens the door to a bigger opportunity.
The first and most obvious advantage of this deal is that it allows Cellnex to become one of the biggest independent towercos in the Netherlands, a very stable and attractive European economy. Shere Group’s Dutch towers have a healthy tenancy ratio of 2.7x.
What does this mean for Cellnex’s remaining small toeholds? Well, their interest in Bouygues’ rooftops in France, which would boost their recently acquired 230 sites to just shy of 3,000 rooftops and towers, is public knowledge. In the UK they will own a portfolio of 540 sites, which puts them in fifth position behind CTIL, MBNL, Arqiva and WIG, however prospective operator consolidation and Arqiva’s plans for reducing debt mean that, although less of a quick win, the potential to acquire a significant portfolio in one of continental Europe’s leading economies could be huge.
Cellnex and Arqiva are both at their heart telecom-broadcast towercos – the synergies are obvious – could the Spanish firm be jockeying to make an offer the indebted Arqiva could not refuse? Could the Cellnex balance sheet absorb another major acquisition without significant restructuring? It’s interesting that Cellnex have focused on the amplification of their Dutch presence in justifying this transaction: is their entry into the UK really only a fortunate by-product of a Dutch-centric deal? Or are they bluffing? For Cellnex a small gamble on gaining influence in the UK market could reap huge rewards.
Shere Group’s majority owners Arcus Infrastructure Partners exceeded their original return targets through the exit.
