American Tower has announced the formation of a joint venture ‘ATC Europe’ which will focus on pursuing telecommunications real estate investment opportunities in Europe. Their partner, PGGM, a Dutch pension fund manager, will own 49% of the venture, although American Tower will maintain control of day to day operations.
According to James Taiclet, American Tower’s Chairman, President and Chief Executive Officer, “The transaction supports our objective to continue to drive double digit total shareholder return by selectively pursuing growth across Europe, while at the same time reinvesting the proceeds from this transaction into higher growth assets around the world by utilizing our disciplined capital allocation process.”
American Tower acquired 2,031 towers from KPN (now E-Plus) in Germany in 2012 for €393mn and now manage a total of 2,197 towers in the country (the increase in numbers is we believe due to a small acquisition over the last four years, with little other organic growth to speak of).
American Tower’s lack of significant growth in Europe has been cause for discussion, given their impressive portfolios in the US (40,426 towers), Africa (11,877 towers), Latin America (33,809 towers) and Asia (15,074 towers). Although ATC has been linked to several European opportunities over the last four years, their portfolio in Europe had remained relatively small with no major acquisitions until their recent announcement about the acquisition of France’s FPS Towers.
Figure 1: Tower deals - Germany
Indeed, since American Tower acquired the KPN towers in 2012, they have invested around US$1.2bn in 6,450 towers in Africa, US$1.2bn in 42,581 towers in India and $8.9bn in 36,668 towers in Latin America, while only growing their European portfolio by 166 towers until December 2016. During this time period Cellnex deployed just shy of €1.8bn and acquired 13,861 towers in Europe across five countries.
As Cellnex demonstrates significant growth in Europe and new opportunities come to market, through asset sales and towerco consolidation, American Tower’s acquisition go FPS Towers demonstrates their intention to go after new deals in the European market, and become another cross-border contender in the market.
Figure two: Who owns Germany’s towers?
TowerXchange will be watching with interest to see how this plays out, and we believe there is room in the market for a serious challenger to Cellnex for control of a leading pan-European tower portfolio, particularly now that the first ground is broken.
Figure 3: American Tower Activity since 2012
American Tower maintains strict compliance to their own investment thesis. This discipline had left them exiting processes short of the valuations of Cellnex and others. Blending the capital and appetite of a major pension fund recalibrates AMT’s investment criteria in Europe and may result in them emerging victorious from more future processes. Whilst Jim Taiclet and the team are not presenting this move as a dilution and reduction in their exposure to the European market, TowerXchange are inclined to the view that this amplifies the joint venture’s appetite for, and prospects to close, tower transactions in Europe.
Figure 4: AMT Germany
Expert view: comment from Jonathan Dann, Managing Director, RBC Capital Markets
TowerXchange: Can you give us some idea of the valuation benchmarks which have come out of Germany in light of both the ATC joint venture with PGGM?
Jonathan Dann, Managing Director, RBC Capital Markets:
American Tower discloses “tower revenues” and the percentage of revenues from Germany in its quarterly filings. From this and prevailing exchange rates we calculate annual revenues of €54m and EBITDA of €38m.
Investment fund PGGM acquired 49% of AMT Germany for €250m implying an EV/EBITDA of 13.5x and €232 per tower on the 2,197 towers in Germany (at the time of acquisition from KPN there were, 2,031 towers and AMT paid €393m).
To put this in a German tower market context, Telefonica transferred 2,359 towers from Telefonica Germany to Telxius for €587m implying 17.3x and €249k per tower.
TowerXchange: What’s your take on American Tower’s deal with PGGM?
Jonathan Dann, Managing Director, RBC Capital Markets:
In terms of the ATC/PGGM deal, It seems odd that American Tower need external capital. I’m not sure whether it means “turbo charge” Europe or digging a tunnel out.
TowerXchange: What can you tell us about Deutsche Funkturm and their potential plans for the future?
Jonathan Dann, Managing Director, RBC Capital Markets:
DFMG is a mix of TV towers, outdoor towers (about 7,500), roof tops and also “police security network”. I’d put a valuation of each of these at probably a mix of 12x, 16x and 10x EBITDA, so it blends at 13-14x EBITDA for the whole organisation.
Deutsche Telekom frequently changes its mind about “monetising” and it seems they would prefer an INWIT-style sale which would allow them to keep control of the assets.
TowerXchange: Please summarise RBC’s view of the German market.
Jonathan Dann, Managing Director, RBC Capital Markets:
My view is that the scale of the market is large enough to support either American Tower, Telxius or DMFG but not all three, so it makes sense to roll the assets up. Right now it looks like everyone seems to want to find a PGGM to buy 40% and keep control.
