IHS Towers makes waves in Brazil

IHS Towers continues to grow in Latin America with the acquisition of over 800 sites in two markets. Centennial Towers, which had built sites Brazil, Colombia and Mexico and was one of the last PE-backed towercos in Brazil has successfully exited in two markets. In this article TowerXchange takes a look at the deals and where they leave IHS Towers which has been on a global shopping spree of late. We also take a look at consolidation in Brazil and what’s left to acquire.

On 12 April 2021, IHS Towers announced the acquisition of Centennial Towers’ Brazilian and Colombian tower operations, totally 819 towers.

The deal adds 602 towers to IHS Towers Brazilian holdings, bringing them to a total of 2,889 sites, following their recent acquisitions of Skysites and their late 2019 acquisition of Cell Site Solutions (CSS). The deal helps IHS Towers to reach an acceptable scale in Colombia where until recently the global towerco giant had just 10 sites which it inherited from CSS; their Colombian holding now totals 227 sites.

The acquisitions are the latest in IHS Towers’ 20 year growth story which has seen it acquire towers across nine markets (and soon to be ten with the announcement of its tie up with Zain and Mobily in Saudi Arabia). Brazil sits alongside Saudi Arabia at the more developed end of its portfolio with notably different operational challenges and commercial opportunities from its west and central African markets.

Commenting on the deal Sam Darwish, IHS Chairman and Group Chief Executive Officer, said: “The addition of Centennial Towers’ Brazilian and Colombian operations adds scale to our IHS Towers Latin American portfolio and will further strengthen the deep expertise and solutions we can offer to current and potential customers in these markets. Latin America remains a key region for us with its high growth potential and, through these transactions, we will continue to increase our market presence and build on the momentum sparked by our initial entry into the region last year with the acquisition of Cell Site Solutions.”

Centennial Towers has its origins in Mexico where the company has developed around 800 sites. In signing the deal Steven Moskowitz, Chief Executive Officer, Centennial Towers, said: “We are thrilled to enter into this transaction with IHS Towers... Centennial’s strong client relationships and proprietary management information systems will assist IHS Towers in advancing their drive to significantly increasing footprint and colocation growth in Latin America for years to come.” Centennial Towers has not sold its Mexican sites and retains 750 to which it must either add or find a willing buyer.

No price tag for the deal has been disclosed and recent deals in Brazil provide little recent data for benchmarking with IHS Towers not disclosing deal values for its past deals either. But given that the towers of the now defunct MNO Oi’s were acquired by Highline at US$313,343/tower and in 2019 SBA Communications acquired 1,313 towers from Grupo TorreSur at US$350,342/tower, we could assume IHS Towers parted with close to US$180mn for these new Brazilian sites.

Back in August 2020, IHS Towers announced a planned IPO as a global towerco, since then it has acquired more sites across Latin America and signed up to a prospective mega-deal in Saudi Arabia– however there’s been no more word on an IPO. Since reportedly calling off a planned 2018 IPO due to political difficulties in Nigeria, IHS Towers has been seeking to diversify in the hope that will unlock the full value of the towers it owns.

In 2018 IHS Towers held 24,000 towers in Cameroon, Ivory Coast, Nigeria, Rwanda, Zambia; with two thirds of sites in Nigeria. By the end of 2021, if things go to plan, it will be active in ten markets, with a joint venture managing 19,100 towers in Saudi Arabia, nearly 3,000 sites in Brazil, 1,610 in Kuwait and its Nigerian operations will total just a third of sites (while remaining very profitable). If the mission has been to diversify and de-risk you could not find a better example.

Back in August Bloomberg reported that the company was looking to raise US$1bn in its planned IPO, however the company has been capable of raising funds from the bond market is likely to leave 2021 looking very different to when its recent IPO plans were first announced. Bloomberg also reported that the towerco was aiming for a valuation of US$7bn. IHS Towers’ owners include AIIM, ECP, FMO, GIC, Goldman Sachs, IFC, Investec, KIC, MTN Group and Wendel and many have been seeking the opportunity to realise their investment.

The raft of deals announced and the change in IHS Towers from a west and central African towerco to a global operator will mean the valuation needs tearing up. For more details on IHS Towers’ position prior to this deal see our IPO explainer here.

Brazil is a real consolidation test bed for the telecom tower industry and towercos have been consolidating sites there for a while now. Relatively speaking, IHS Towers is late in the game but has been moving to acquire sites aggressively and to establish itself as a key player in the market.

Centennial Towers was seen as one of the last men standing in terms of PE-backed towercos that were due an exit. TowerXchange understands that QMC Telecom is the last of that first generation of entities which could still look for a buyer.

Consolidation as extended to the MNO market as well as the towerco market. Brazil’s MNO market has gone from four to three with Oi’s bankruptcy in 2016. It has since been acquired by a consortium of the Brazilian operations of América Móvil, Telecom Italia (TIM) and Telefónica who have now split the assets and subscribers between them. The establishment of three healthy MNOs has left Brazil’s many towercos with opportunities for lease up, but they still expect this change to affect cashflow in the short and medium term, with the market shrinking and many Oi’s tenancies likely to be removed.

As Brazil moves to adopt 5G, the President of Anatel, the local regulator, Leonardo Euler de Morais, said that the 5G auction won’t collect money but will require MNOs to invest in the telecom sector. De Morais was quoted stating that “it will be the largest spectrum auction in the history of Brazil. And we are working with an objective that favours investment commitments to the detriment of a collection objective. Brazil still has gaps in telecommunications infrastructure and this tender is a unique opportunity to fill these gaps.” Tenancies lost through Oi’s bankruptcy should hopefully be replace by technology upgrades from a more rapid 5G rollout.

Both American Tower and SBA Communications have been active consolidators in the market with American Tower owning 19,145 and SBA Communications owning 9,934 out of Brazil’s 64,966 sites following a series of acquisitions. The latest move to consolidation saw Marc Ganzi’s Highline do Brasil acquire Phoenix Tower do Brasil and its 2,500 sites. Highline also acquired the tower assets of Oi.

Around 19,200 towers remain managed by MNO, but a recent move by América Móvil to spin-off its regional portfolio will see 11,000 sites in Brazil carved-out. A possible carve-out of the MNO’s sites has been on the cards for years but its impact on the towerco landscape is yet to be seen, however should these sites come to market there are now several credible buyers, IHS Towers included.

Whether we are looking at Asia, CALA or Europe, a wave of consolidation is continuing to help the world’s largest towercos to grow. In India the Bharti Infratel and Indus Towers tie-up has created a sub-continent spanning 175,510 site giant. In Europe Cellnex’s towerco acquisitions have seen it swell its site count. Previously acquisitive towercos like SBA Communications and American Tower are now seeing competitors entering markets and consolidating smaller operators which were once acquisition targets. All of this is pushing up the value for telecom towers, which is good news for investors like Centennial Towers’ backers Madison Dearborn Partners and Breslau Capital.

Towercos work best at scale, whether that is within market so that operations and networks can be rationalised or internationally so that towercos can benefit from scale and diversification so they can find access to capital markets more cheaply. IHS Towers has proven itself well positioned to acquire towers whether it is private or public, and any future IPO will do little to change its acquisitive nature. TowerXchange expects to see markets like Brazil consolidate further and newer towerco markets to move in the same direction. How that impacts Europe – where MNO-backed towercos are targeting scale – or Africa – where towerco consolidation has already proceeded apace – will vary, but we expect to see the world’s largest towercos continuing to get bigger and bigger.