Exclusive: Discussion with Berkshire Partners about Torres Unidas

The acquisition of Torres Unidas by Digital Bridge this past December lights the blue touch paper on the consolidation of CALA’s private towercos. In this exclusive interview, Beth Hoffman, Managing Director at Berkshire Partners, discusses with TowerXchange the investment criteria, business challenges and lessons learned during their Torres Unidas’ experience.

TowerXchange: Beth, please tell our readers about your current role within Berkshire Partners and the company’s activities in the telecom infrastructure industry.

I am one of the Managing Directors of Berkshire Partners – I joined the firm back in 2003. Within Berkshire, I am focused on the telecom infrastructure investment practice.

Our experience in this segment dates back to the mid-nineties when we invested in what is known today as Crown Castle. Over the past 20 years, we’ve invested in and partnered with Crown Castle a number of times. Since our initial investment in Crown Castle, we have invested in other tower companies both domestically and abroad, including Southeast Asia and Latin America. We have also invested successfully in data centres, fibre, and managed network services companies serving customers on a global basis.

Today, our interest in the sector goes well beyond towers and includes data centres, fibre and other elements of the network. Within our technology and telecom infrastructure focus, we are interested in anything below the application layer, whether a hard asset, software, a service or a combination of these elements. Network and computing environments are becoming increasingly distributed and complex and we are interested in nearly all aspects of effectively deploying and managing these environments, both internationally and in the United States.

TowerXchange: Can you summarise the criteria behind the initial investment in Torres Unidas?

Broadly speaking, I think that the first three criteria to consider relate to the market and its opportunities, the management and lastly, the platform.

With regards to the market, when we started looking at Latin America back in 2012, most investors were focused in Brazil. On the other hand, we eyed an opportunity to enter the Andean Region which looked quite appealing to us.

Peru and the other countries we examined presented the type of growth characteristics that we were looking for: growing demand for coverage and data, a large pool of “data-hungry” consumers, early mobile penetration as well as an underdeveloped infrastructure and telecom sector. The shared infrastructure model wasn’t the norm but these countries enjoyed relatively favourable regulatory environments. Additionally, with three to four strong carriers each, stable economies and acceptable country risk, the Andean Region ticked most boxes we were interested in.

From a management standpoint, we were fortunate to meet Daniel Seiner, who brought years of experience in the Latin American telecom space and who proved to be an outstanding business leader. Daniel then went on to assemble a very strong management team who greatly contributed to the growth of Torres Unidas.

Additionally, we had the strong support of our Advisor Director, John Kelly, who had previously served as CEO of Crown Castle for a decade and whose experience and leadership gave us a lot of confidence when we started Torres Unidas. He effectively served as Chairman of the towerco and worked very closely with Daniel Seiner, especially during the initial stages of the company.

TowerXchange: 2012-2017 is a perfect five year lifecycle for a private equity backed towerco. How did Torres Unidas achieve its milestones? And how much interaction and synergies occurred between the management and Berkshire?

In 2012, when we acquired the first 350 towers from Telefónica in Peru, we were a start-up company. We had quite a lot of experience in the sector but effectively were the new players in the market region. As a result, the involvement of Berkshire Partners was quite high in the beginning.

Daniel Seiner was new to a CEO role but is smart, commercial and was very familiar with the local markets. We had quite a few lessons learnt and beliefs from previous investments that we wanted to apply, and Daniel and his team were terrific partners in building what we believed is a first-class wireless infrastructure company.

Over time, as the management team grew stronger, our day to day involvement took a step back and we remained more active only during major M&As or the hiring process of senior management, while acting as a traditional board and allowing Daniel and his team to run the business.

It might not work for others, but we tend to be advisors to our investments and we don’t like to operate on behalf of the management of the companies we commit to.

TowerXchange: If you could give other private equity firms two or three pieces of advice on how to invest in an international towerco, what would they be?

During our time at Crown Castle, we formed some beliefs that were then reflected into Torres Unidas.

I guess that one crucial component is the processes and systems we put in place from the start to track the assets and manage operations. Towers are a highly detailed business to operate; although not complex assets, the attention to detail is crucial to run them properly. From our prior experience in the tower sector, we knew the importance of careful asset management, what was important, and where to turn. This experience helped us to set up Torres Unidas relatively fast and create a platform capable of managing several thousand towers.

Another aspect that we think made a difference was our local presence, knowledge and experience. I believe that managing a foreign business from the United States without a senior local management team would have increased the complexity and risks. Daniel is from Peru and had worked with Latin American telecom companies for years. While we had an office in Florida, we set up a strong local presence with strong in-country leadership while also selecting the specific elements of the U.S. tower business model that could be and should be applied to the Andean Region. We had to evaluate the realities of the local market and understand the applicability of our learnings from investments in the United States.

Being local also helped us gain the trust of the operators which at the beginning weren’t that familiar or comfortable with the infrastructure sharing model. Daniel recruited an outstanding team over time and we were very fortunate to work with them in this venture.

Lastly, I would strongly recommend to adopt a zero tolerance and robust compliance policy from day one, and that needs to start at the top of the organisational chart all the way down. In the region, there are plenty of opportunities to successfully compete in a very compliant way. We, the board and Daniel, paid a great deal of attention to ensure that the right culture was in place.

TowerXchange: Thinking about the initial expectations in terms of exit, portfolio growth and overall footprint, how much has been accomplished?

In the early days, when we signed the first deal in Peru, there were no tower companies of scale except American Tower and the industry was in its very early stages.

We established Torres Unidas from scratch and over a period of time, it became a respected provider of shared wireless infrastructure that partnered successfully with carrier clients and achieved positive financial results.

We exceeded our co-location targets, enjoyed strong new build activity, and exceeded our modeled expectations.

On the other hand, we expected more in terms of inorganic growth - that could have gone better had the carriers decided to divest their assets. We thought we could scale to over 5,000 towers but not as many carrier portfolios came to market as we originally expected.

Another factor that didn’t help was the foreign exchange. That said, we were able to achieve positive growth in our business in spite of a 30% foreign exchange headwind.

In terms of operations and overall success, we were pleased with the results we achieved during our ownership chapter. We expected a lot of Daniel and his team and they outperformed our targets. Did it go perfectly? No, it never does. But it exceeded our expectations in spite of quite a few third party factors that played against us.

TowerXchange: How does the Torres Unidas experience compare to Protelindo’s?

The two investments are considerably different. In fact, Protelindo is a publicly traded company on the Indonesian stock exchange, it runs a much larger portfolio and has been in business for over ten years now. Our level of oversight and time commitment are different too, since we are a minority investor in the business.

Similar to Torres Unidas, Protelindo runs its balance sheets in a very conservative way and enjoys strong leadership. From a market perspective, both are earlier in the deployment of 4G networks and small cells and consumer adoption of data is at an earlier stage than what we see in United States, for example. Like the Andean region, Indonesia presents an attractive carrier landscape with multiple carriers looking to invest in their networks to catch up with wireless demand, and sharing infrastructure makes real economic sense when faced with limited capital budgets. These factors don’t differ much between Indonesia and the Andean region.

TowerXchange: Is Berkshire considering further commitments in Latin America?

We are always looking for compelling opportunities and remain open to different types of investment in Latin America and other international markets.