CALA towerco consolidation accelerates

The CALA tower industry has been created and established on two contrasting blueprints. On one hand, the participation of towercos that are long term investors, committed to stable growth plans across multiple countries, less inclined to risks and observant of the U.S. steel and grass model which they versioned for their ventures South of the border. And on the other hand, a myriad of private equity backed (PE-backed) towercos operating with a specific exit timeline in mind, high growth expectations and an appetite for greater risk. In this editorial, TowerXchange takes a close look at the consolidation trends in CALA, with the long term investors increasingly acquiring the PE-backed towercos, and suggests who could be next in line in the game.

The structure of the CALA towerco landscape is defined by the fact that while long term players have less appetite to build towers in tough locations, explore countries with a higher degree of operational complexity and open frontier markets, they would however be open to acquire portfolios built by entrepreneurial towercos that have de-risked such markets, at attractive valuations, should they meet the right conditions.

Back at the turn of the decade, when FX rates and build volumes were more favorable than subsequently, CALA did experience some early examples of towerco on towerco consolidation exemplified by the Sitesharing, GTP and Z-Sites deals between 2011 and 2013. However, the first groundbreaking transaction of scale between towercos took place in 2014, when American Tower snatched BR Towers’ 4,630 sites in Brazil for US$978mn (US$211K per tower, but reportedly at a valuation multiple just into double digits).

BR Towers was created in 2012 and rapidly scaled to over 4,000 sites thanks to two acquisitions from Oi and Telefónica and a small one from Sitesharing. Its swift growth trajectory from start-up to exit proved to the regional towerco community that the aforementioned premise, that tower entrepreneurs could build and buy well - and exit successfully - was indeed correct. And if on one hand it incentivised disciplined PE-backed towercos further in their expansion plans, the transaction also enticed a pool of relatively inexperienced entities to enter the region and disrupt its competitive dynamics.

The reference is to those towercos willing to build towers at deep discount lease rates, sometimes cutting corners on permitting and standards, and sometimes in suboptimal locations which will make it difficult to attract a second, let alone third, tenant.

To date, questions remain whether acquisitive towercos will be interested in buying such “hard to market” portfolios at all or whether they are destined to remain in the hands of their original owners for longer than they originally planned.

2014 also saw a smaller and yet strategic deal between American Tower and Phoenix Tower International (PTI), with the latter acquiring 60 sites in Panama thus announcing themselves as another buyer in the inorganic growth game.

In spite of a pan-regional economic slowdown, 2015 and 2016 demonstrated that the consolidation process wasn’t going to be halted by challenging market conditions. In fact, at least four deals took place in the slowest and toughest biennium ever experienced by the CALA tower sector.

Phoenix Tower International (PTI) sealed a deal for the acquisition of T4U and its 529 sites which led to the creation of PTI’s Brazilian spin-off Phoenix Tower do Brasil and a few months later, PTI’s ventures across CALA continued with the acquisition of 190 sites from Teletower in the Dominican Republic. Lastly, in 2015 SBA acquired 130 sites in Ecuador from Torresec.

2016 was a rather uneventful year for CALA tower transactions, but one company succeeded at divesting its assets. In November 2016, NMS sold 359 Mexican, Colombian and Nicaraguan sites to new entrant Uniti Towers for US$65mn (US$181K per site). NMS management then went on to create a new venture, BTS Towers, with similar ambitions and footprint as the original entity.

What we can guess about 2016 is that in spite of being a very slow year, it did host plenty of negotiations behind the curtains for what would prove to be the most exciting phase of CALA towerco consolidation to date.

The lifecycle of a typical private equity investment ranges between seven and ten years and it might stretch to as long as 15 years in certain sectors. However, in the CALA telecom infrastructure industry towercos are proving that five is the perfect number!

While the regional market is enjoying a second wave of carrier divestments with the likes of Digicel, Tigo and Axtel releasing portfolios across multiple countries, towercos are eyeing each other to further consolidate assets and at least three entities made an exit over the past twelve months.

Torres Andinas, with an estimated portfolio of 400 sites across Colombia and Peru, exited the market and sold its assets to SBA Communications. The company was backed by a consortium of private and public investors who included Directors from SBA Torres in Panamá, Costa Rica, Guatemala, El Salvador and Nicaragua so it’s possible that the two companies had some sort of ‘build to flip’ or right of first refusal agreement from day one. SBA Communications also acquired Highline do Brasil and its 1,200 sites in November 2017.

In December 2017, Andean Tower Partners announced the acquisition of Torres Unidas and its 1,644 across Peru, Colombia and Chile. This move also meant a reshuffle at the management level with Daniel Seiner taking over the position of CEO of Andean Tower Partners and Estrella Zaharia being appointed Chief Marketing Officer.

What do these deals have in common? The three towercos achieved different scale and exits (undisclosed) and operated in a variety of countries but they were all active for approximately the same period of time: five years. And they made an exit at the very beginning of the recovery of CALA economies, hinting both at their readiness and at the attractiveness of their portfolios.

In 2017, PTI acquired an additional 150 sites in three undisclosed deals with a Peruvian towerco, a Colombian towerco and a Colombian rooftop business, suggesting that the consolidation game is not only made of companies selling their assets to exit the market but also of divestments of pockets of assets whose proceeds are likely being utilised to refinance those small towercos in their ongoing build-to-suit plans.

One of the most likely towercos to seek a profitable exit over the next few months is Grupo TorreSur with its 6,500+ tower portfolio across Brazil. The towerco is backed by Providence Equity and was eyed by Macquarie (among others) back in 2015. The deal didn’t take place back then but the towerco could be high on the shopping list of various buyers for 2018.

QMC Telecom runs a portfolio of approximately 1,250 sites in Brazil, Mexico, Colombia and Puerto Rico and is backed by Peterson Partners, Accel Partners, Grupo Santo Domingo and Housatonic Partners. The towerco was founded in 2008 but its latest round of financing is dated 2015. With operations across multiple markets, the company could also decide to divest single portfolios rather than the entirety of its operations and actually we wonder if they could be one of the sellers behind the PTI deal back in 2017.

Brazil Tower Company (BTC) has been in operation since 2011 and runs a portfolio of around 800 sites across Brazil. The towerco is backed by 1848 Capital Partners and welcomed Silver Swan as an investor with US$40mn back in 2016 to finance its growth and development. Having been operating for seven years, BTC might be seeking to exit Brazil now that the country is finally recovering from its recession.

Continental Towers was created in 2008 and runs a portfolio of approximately 700-800 sites across Mexico, Dominican Republic, Jamaica, Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica, Panama, Colombia and Peru. Originally a joint venture between Terra Projects and Credit Suisse, it then received a US$120mn loan package from the IFC to further fund its Central American expansion in 2012.

The last towerco that could be interested in exiting the market is Centennial Towers, whose operations date back to 2008, when the Bettsak family investor group launched its venture in Panama. The towerco is also backed by Madison Dearborn Partners since 2014 and runs a portfolio of over 1,500 sites in Brazil, Mexico and Colombia (unless they were one of the sellers to PTI!), having sold their Panamanian assets to SBA Communications in 2011 and their Costa Rican tower business to Global Tower Partners in 2014.

What’s left to understand is whether investors that have committed to towercos in Brazil and other countries that were affected by economic crisis can achieve the multiples they forecast at the time of the initial investment, in light of the devaluation of various local currencies across CALA.

The pool of acquisitive towercos grew over the years as a function of the entrance of two new forces: Digital Bridge and its CALA ventures Mexico Tower Partners and Andean Tower Partners, and Phoenix Tower International and its Brazilian partner company Phoenix Tower do Brasil.

Digital Bridge, the holding company behind Andean Tower Partners and Mexico Tower Partners, was created in 2013 by Ben Jenkins (Dering Capital) and Marc Ganzi (former CEO of GTP) after the sale of GTP to American Tower for US$4.8bn. Since inception, Digital Bridge has raised over US$6bn of debt and equity capital used to acquire and invest in the development of communications infrastructure businesses, including DataBank, ExteNet Systems, Vertical Bridge, Andean Tower Partners, and Mexico Tower Partners.

Phoenix Tower International founded in 2013 by Dagan Kasavana, the M&A mastermind behind the GTP rollup strategy and sale to American Tower, along with other GTP alumni such as Tim Culver and Natalya Kashirina. PTI now owns and operates over 2,000 towers across Colombia, Perú, Costa Rica, Panamá, El Salvador, the Dominican Republic, the U.S. and Brazil (via Phoenix Tower do Brasil). PTI’s investors include funds managed by Blackstone Tactical Opportunities as well as various members of the management team.

So while up until a couple of years ago PE-backed towercos could only rely on American Tower and SBA Communications (and perhaps we should still count Grupo Torresur as potential buyer or seller) as acquisitive forces, now the CALA region is abundant with options for those towercos who diligently scaled their businesses ensuring high margins and solid contracts and are now looking for a buyer. And even the smaller entities such as the aforementioned Uniti, and Torrecom have proved to be interested in acquisitions from time to time as demonstrated by the latter’s purchase of 25 sites in Panama earlier last year.

TowerXchange expects the next few months to be rather exciting ones for the CALA tower sector, with both niche carrier portfolios and towerco assets coming to market. We forecast the CALA landscape to be quite different twelve months from now and recommend everyone who wants to know more to join us at the fifth annual TowerXchange Meetup Americas, 20-21 June in Boca Raton, for the one and only event of choice of the entire regional tower ecosystem.