This is the news and speculation that has dominated the European tower industry newsfeeds for the past few months – the sale of Deutsche Telekom’s GD Towers business. Boasting the largest tower portfolio in Europe’s largest mobile market, alongside a healthy portfolio in Austria, Deutsche Telekom’s tower business had no shortage of suitors when it came to market. Europe’s big name towercos alongside various investors had been linked to the deal but on 14 July it was announced that DigitalBridge and Brookfield had emerged as the winning bidders, acquiring a 51% stake which valued GD Towers at €17.5bn. Here we examine the deal.
What do we know about the structure of the deal?
Deutsche Telekom have sold a 51% stake in GD Towers, valuing the business at €17.5bn, an EV/ pro forma adjusted EBITDA AL 2021A multiple of around 27x.
Commenting on the deal, Deutsche Telekom CEO, Tim Höttges said “Deutsche Telekom once again delivers on its strategic agenda. We crystalize the value of our tower assets, thereby creating value for our shareholders. At the same time the deal allows us to continue improving Deutsche Telekom’s undisputed network leadership in Germany and benefit from further value upside of the towers business through our retained 49 percent stake.”
Deutsche Telekom’s 49% stake comes with significant minority protection rights, including the right to appoint two of the five Shareholder Committee members, including the Chairman. Along with the favourable terms of the Master Lease Agreements (each with a lease term typically of 30 years), the joint governance structure will enable anchor tenants Telekom Deutschland and Magenta Austria to retain leadership positions in their respective markets.
The lease agreements give the operators unrestricted access to GD Towers entire portfolio and come with inflation protection mechanisms (with site lease increases indexed to the CPI at a discount of 15% and capped at 3%). The agreement also includes a number of ringfenced, strategically important “golden sites” as well as preferential access to vacant space for future upgrades. Telekom Deutschland and Magenta Austria have secured agreements with GD Towers for the rollout of 5,400 new sites up to 2026, whilst also prioritising capacity for technology upgrades through to 2028.
GD Towers existing leadership team of Bruno Jacobfeuerborn (CEO) and Thomas Reid (CFO) will remain in place to steer the ship.
What are the assets that have been acquired?
In Germany, GD Towers owns 33,500 sites, of which 550 are understood to be high towers, c. 9,450 masts, c. 16,600 rooftops, 3,250 special sites and 3,650 resell sites. Deutsche Funkturm, GD Towers’ German towerco business was formed in 2002 and has been Germany’s most prolific tower builder – regularly rolling out in excess of 1,000 new sites per year.
In Austria, Magenta’s tower assets were carved out and contributed to GD Towers at the start of 2021. In the country, GD Towers’ site count totals 7,000 sites.
Deutsche Telekom’s Dutch towers had previously formed part of their GD Towers business unit, but the assets were sold to DIV (a new fund of which Deutsche Telekom and Cellnex were anchor investors) and ultimately contributed to Cellnex Netherlands, with the sale completing in June 2021.
GD Towers generated prof forma revenues of €1.1bn in 2021, whilst delivering a pro forma adjusted EBITDA AL of €640mn.
Who are the acquirers?
Brookfield and DigitalBridge are two of the biggest names in the digital infrastructure space.
DigitalBridge is a leading global digital infrastructure REIT with investments spanning the entire digital ecosystem including towers, data centres, fibre, small cells, and edge infrastructure. DigitalBridge’s investments in the tower space include Vertical Bridge (US), Mexico Tower Partners (Mexico), Andean Telecom Partners (Chile, Colombia, Ecuador, Paraguay and Peru), Highline (Brazil), EdgePoint Infrastructure (Indonesia, Malaysia and Philippines), Digita (Finland), ÍslandsTurnar (Iceland), Belgium Tower Partners (Belgium), Vantage Towers (pan-European) and digital infraco Freshwave (UK).
The investor has recently ramped up its presence in the European tower market, with the Iceland and Belgium deals having only been announced in the past 6 months, and their investment of €500mn in Vantage Towers taking place in Q1 2021.
Whilst their minority investment in Vantage Towers gives DigitalBridge exposure to over 82,000 European towers (inclusive of Vantage’s stakes in Cornerstone and INWIT) as well as the German market (where Vantage Towers owns 19,400 sites), the acquisition of GD Towers is transformational for DigitalBridge’s European tower presence, adding over 40,000 sites to its portfolio.
Speaking on the deal, DigitalBridge CEO Marc Ganzi said “The partnership being formed today is about building the next generation digital infrastructure champion of Europe. The combination of Deutsche Telekom’s leading mobile network and market position, alongside one of the largest real asset managers in the world in Brookfield, combined with the digital infrastructure domain expertise of DigitalBridge, creates a team of unmatched capabilities to support GD Towers as it grows to meet the evolving network demands of enterprises and consumers across Europe.”
Brookfield is a major real estate and infrastructure investor, whose investments in the tower landscape include Summit Digitel (India), Wireless Infrastructure Group (UK & Ireland), Telia Towers (Norway, Finland and Sweden) and TDF (France) - although the investor has appointed advisors to oversee the sale of its 45% stake in the latter. The investor has been linked with a number of other towercos and tower deals on the global stage and was recently reported to have submitted an unsolicited bid for Vantage Towers. The deal with GD Towers adds another European towerco to its highly attractive stable.
“We’re delighted to be partnering with Deutsche Telekom and DigitalBridge to expand our presence in the European telecom infrastructure sector,” said Sam Pollock, Managing Partner at Brookfield and CEO Infrastructure. “This represents a great opportunity to invest in a highly attractive tower portfolio, with highly contracted cash flows and strong upside potential. Brookfield is already a leading global infrastructure investor, with approximately 200,000 telecom tower and rooftop sites under management globally. We hope to bring that experience and expertise to this new partnership, for the benefit of our customers in Germany, Austria and beyond.”
Who did they pip to the post?
A large number of suitors had been linked to the GD Tower sale including Cellnex (whose European footprint does not cover the highly attractive German market), ATC Europe (who already owns around 14,500 sites in the markets), Vodafone’s Vantage Towers and Orange’s TOTEM (both of which had discussed tie ups with other operator owned towercos), as well as investment firms including KKR, Global Infrastructure Partners and Stonepeak Partners.
What is the shape of the German and Austrian towerco markets?
The decision to sell to Brookfield and DigitalBridge has avoided any towerco consolidation in the German and Austrian towerco markets.
GD Towers retains its position as market leader in Germany, with its portfolio of 33,500 sites significantly larger than its towerco peers (Vantage Towers – 19,400 sites and American Tower 14,744 sites). Notably, GD Towers portfolio also includes twice as many ground-based towers as its peers. 5G rollout is well underway in Germany and new build requirement is significant, particularly as the country looks to improve coverage in rural areas. New market entrant, 1&1 is rolling out its network based on Open RAN technology and has signed agreements with both Vantage and ATC Europe to use their sites. There is still some potential M&A activity ahead in Germany, with Telefónica retaining an estimated 8,900 sites but the country already has a healthy towerco landscape with three large towercos operating in the 4 MNO market.
In Austria, GD Towers is one of two towercos operating in the market, competitors Cellnex having acquired their c. 4,500 site portfolio from CK Hutchison’s 3 as part of a multi-country deal.
Operator A1 (Telekom Austria) has recently created a legal towerco entity in the country (alongside entities in several other markets), a likely precursor to a major tower announcement. In Latin America, A1 Group’s majority shareholder, América Móvil, has formed operator-owned towercos (Telesites in Mexico and Sitios Latinoamérica in 15 further market) and the formation of a carve out is widely expected in Europe.
Will we see GD Towers expand into adjacencies?
To date, GD Towers’ primary focus has been on macro towers, with little focus on many of the adjacencies that some of the continent’s other towercos have started to explore.
The involvement of DigitalBridge is likely to change this. With extensive expertise in fibre, small cells, private networks, edge data centres and more, DigitalBridge will have a keen interest in expanding GD Towers’ remit and has the necessary know-how to support this. Marc Ganzi’s comment in the deal announcement press release about supporting “GD Towers as it grows to meet the evolving network demands of enterprises and consumers across Europe” already hints as to potential plans ahead.
GD Towers has done little to date in terms of small cells and DAS (with German and Austrian operators having managed the bulk of such rollout) and so there is the potential to ramp this up. GD Towers has a large number of high towers with significant land around them, such land could be used to house edge data centre facilities – something that would plug in well to DigitalBridge’s edge data centre business. GD Towers has some experience in managing active networks in the role they have played in the European Aviation Network (where Deutsche Funkturm acquired, planned, and built the entire ground-based network with about 300 transmitting stations in 30 European countries) - perhaps private networks could be another avenue for growth? GD Towers has also been involved in EV charging networks, supporting Telekom and DT’s start up Comfort Charge in rolling out charging stations at central offices and street cabinets. There is no shortage of potential expansion opportunities.
Could there be geographic expansion on the cards?
Only Deutsche Telekom’s towers in Germany and Austria had been transferred to GD Towers (with the exception of the Dutch towers which had been separately sold in 2021) but Deutsche Telekom has already begun the carve out its tower portfolios in the Czech Republic and Slovakia into separate entities. Will the operator look to pursue a similar strategy with these towers and could they look to tie this into the GD Towers portfolio?
The operator made the decision to proceed with the sale of GD Towers without bolstering its site count with the addition of towers in two further markets. Retrospectively adding this to GD Towers’ perimeter would involve a complex set of negotiations. Through the GD Towers deal, Deutsche Telekom has clarified its goals of crystallising maximum value for shareholders whilst still retaining the benefit of further value upside through its remaining 49% stake. One can assume they would look to a similar strategy in the Czech Republic and Slovakia – monetising a majority stake in the assets. Whether they would like to do this under GD Towers umbrella and whether DigitalBridge and Brookfield would have an interest in this remains to be seen.
Deutsche Telekom has a presence in a number of other European markets, although the ownership structure of many the opcos is complicated by various direct and indirect investments. Any planned tower carve out or sale in such countries would come with an added level of complexity.
As one of Europe’s leading operators however, expect significant interest should further portfolios come to the table.
