Phoenix Tower International (PTI) is entering Germany after signing a deal to acquire Netherlands-based Novec BV’s German subsidiary, Novec GmbH. The German towerco operates 220 sites and gives PTI a foothold in the German market where Deutsche Funkturm, Vantage Towers and American Tower between them own 61,683 of Germany’s 78,483 telecom towers and rooftops. A third of PTI’s German portfolio is high voltage pylons and the rest are a mix of macro towers (towers, silos, chimneys and roof tops) in different locations and in areas with different population density.
Who is PTI?
The deal marks Phoenix Tower’s entrance into its sixth European market and its 21st globally, adding to its European portfolio in Cyprus, France, Ireland, Italy and Malta. While many towercos focus on large sale and leasebacks, PTI has proven comfortable taking on small portfolios and growing them to something more substantial.
Internationally, PTI operates 13,141 towers across 14 markets in the Caribbean, Central and Latin America, and 1,081 towers in the US, according to data from Capacity’s sister company, TowerXchange. Including the 220 towers it is set to acquire in Germany, PTI owns and operates 8,600 towers in Europe, for a total of 22,822. This makes PTI the 23rd largest tower company globally by towers owned.
Speaking exclusively to TowerXchange Dagan Kasavana, CEO of Phoenix Tower International, said "Germany is led by investment-grade operators, has major 5G and coverage build out plans in front of it, is a key western European market and for those reasons has always been a market we wanted to do business in. We think the carriers are looking for entrepreneurial partners so the timing couldn’t be better for us to enter. To have four tower companies in a population of 83 million, we don’t think that’s a lot, especially when two of them are MNO partnerships.” Also commenting on the deal, Gertjan Hoefman, CEO of NOVEC, said "NOVEC is pleased to announce that we have found in PTI a strong strategic investor that can support NOVEC GmbH in its further growth ambitions in Germany."
In other news reported last week, it’s been reported that a consortium comprising of BlackRock and Grain Management is in advanced talks to buy a roughly 20% stake in Phoenix Tower International from funds managed by Blackstone, according to people with knowledge of the matter. This follows an earlier deal in which Wren House acquired a stake from Blackstone. The 20% stake is reportedly on the block for about $1.3bn, which would value the tower operator at roughly US$6.5bn excluding debt, as reported by Bloomberg.
Who is NOVEC GmbH
NOVEC GmbH (in Germany) was created as a subsidiary of NOVEC in the Netherlands around five years ago. NOVEC has been active for over 20 years, which dates its foundation to a similar time to Deutsche Funkturm, however much like the towerco giant, the growth of the company has been limited by the overall slow progress of the independent telecom tower business in Europe. That has now changed with substantial growth in the model over the last half decade.
NOVEC describes itself as a neutral provider of locations for mobile communications systems, and as implies it provides more than just macro towers. The company has a speciality in finding white holes, and either building new masts or using existing infrastructure such as towers or silos. The company is currently a subsidiary of European electricity grid operator TenneT and can therefore offer tenancies on a north-south German network of high-voltage pylons.
“We’ve seen that model being very successful in the US and Mexico, where we’ve seen co-locations on high voltage pylons historically in the tower space.” shared Kasavana.
As well as building and managing masts for mobile network operators NOVEC also works with cities and municipalities to meet local connectivity needs. This specialty in finding “not spots” is especially important in Germany where rural connectivity is a noted growth opportunity that PTI can tap into. PTI reports that it is also acquiring a significant build to suit pipeline whose focus is white spots coverage across the country. “We certainly want to expand build to suit and work with our carrier partners across the country, but we’ll continue to focus on covering the white spaces leveraging the thousands of third party real estate locations that we have under marketing agreements and traditional macro BTS because we know that’s a priority for all of the carriers in Germany right now”, CEO Dagan Kasavana confirmed to TowerXchange.
PTI is therefore not just entering an important European market, it is also adding at least two new business lines to its business and adding an experienced team that can: 1) deliver connectivity on high voltage pylons, 2) navigate Europe’s systems of permissions for turning alternative structures into usable vertical real estate, 3) build in rural areas, and 4) work with local municipalities. NOVEC Germany’s senior management team headed by Jan Willem Tom will be joining PTI’s German team. “We wanted to make sure that we have a strong local team that has already created so much value on these sites.” Kasavana said.
What this means for Germany
There is now an alphabet soup of infrastructure investors owning telecom towers in Germany. DigitalBridge and Brookfield now own a 51% stake in GD Towers’s Deutsche Funkturm on which DT sits as anchor tenant. American Tower (operating as ATC Europe, with minority stakes owned by Allianz, CDPQ and PGGM in Germany) acquired Telxius in 2021, in addition to other towers it has acquired and built in Germany over the years. Vantage Towers, formerly owned by Vodafone, is now majority owned by KKR, GIP and PIF.
In terms of co-location growth, each of the three major towercos has a logical anchor tenant, DT, O2 and Vodafone. While American Tower is comfortable burnishing its independent credentials, both Deutsche Funkturm and Vantage Towers are in the process of establishing themselves as fully independent towercos. PTI’s tenacious sales teams will be keen to win tenancies from the country’s existing big MNOs.
For build-to-suit, challenge operator 1&1 is growing its network by using existing telecom tower infrastructure, but its journey has not been smooth. In late 2021 Vantage signed an agreement with 1&1 to provide at least 3,800 (but up to 5,000) existing sites to 1&1 throughout the country for the next 20 years. In May 2023 1&1 revealed its delayed launch of 5G services was due to Vantage Towers not fulfilling a commitment to supply 1,000 sites by end 2022 and the MNO has created a new rollout plan as a result. Prior to this, in 2022, 1&1 signed an agreement with ATC Europe to access the towerco’s portfolio of just under 15,000 sites.
In addition to building infrastructure for the country’s newest MNO and existing anchor tenants, providing mobile communications coverage along rail tracks brings additional growth opportunities under the Gigabit Innovation Track initiative. It provides funding to deliver connectivity under the German government's Mobile Communications Strategy. In addition to providing coverage, the latter involves tackling dead zones, improving rural coverage and simplifying permitting.
According to the Federal Ministry of Transport and Digital Infrastructure providing 100% coverage would cost approximately EUR15bn as 30% of the country's land area is considered undeveloped natural area. It has set up the public mobile infrastructure company Mobilfunkinfrastrukturgesellschaft (MIG) which operates on behalf of the Ministry to identify areas to deliver mobile coverage and to further densification in the country by 2030.
In terms of M&A, there are not large portfolios remaining in Germany. Some 2,000 ground-based Telefonica towers remain on the operator’s balance sheet. And German broadcast towerco Media Broadcast Group owns a further 450 towers in Germany and was acquired by Freenet in 2016 for €295mn (around 12x EV/EBITDA).
Whilst co-location potential remains strong on Germany’s ground-based towers (DFMG reports a 2.3x co-location ratio, more recently formed Vantage Towers 1.8x), unique conditions in the German market means that the tenancy ratio on rooftop sites sits at almost exactly one. Landlords in Germany typically agree rooftop leases on a per operator basis rather than per site basis and as such, the synergies available from passive sharing on rooftops are greatly reduced. PTI’s entrance through the acquisition of a small towerco should enable it to focus on more profitable sites.
“American Tower is the only independent player in the market right now, the other two players are not entirely independent, they’re carrier owned.” Kasavana told TowerXchange, something that Vantage Towers and Deutsche Funkturm reject. “As a result, we really see PTI being the only true private independent tower company in the market. This is similar to our position in Italy and Ireland. In general, that has been a source of strength for us as we enter to markets – to enter the market as an independent, entrepreneurial privately-led business helping all of our business partners achieve their goals, which we think will also resonate in Germany.”
CMS Hasche Sigle, Van Lanschot Kempen and Unicredit acted as advisors to PTI, while ABN Ambro, CASE Corporate Finance and Gleiss Lutz acted as advisors to Novec. The transaction is subject to customary regulatory approvals and is expected to be completed in the coming months.
