Nigerian towerco Pan African Towers (PAT) has announced a new strategic investment partnership with Africa-focused strategic investment firm Development Partners International (DPI) and investment management firm Verod Capital.
The investment comes with a renewed strategic direction for the Nigerian towerco, reaffirming its position as the country’s largest homegrown digital infrastructure provider.
Azeez Amida, CEO of PAT, said: “As a proud Nigerian-founded and run business, Pan African Towers is on a mission to accelerate the Nigerian market and support the growth of the mobile telecommunications sector in the country. We also have a clear strategic vision to grow the business sustainably, including actively reducing the carbon footprint of our network to uphold best-in-class ESG practices.”
“We are excited to partner with DPI and Verod and will leverage their sector experience and market expertise to help us achieve these goals. The evolution of Nigeria’s mobile and wireless industry presents significant opportunities for our business, and we look forward to being a part of this next chapter of growth.”
PAT’s strategic plan focuses on operational efficiency, expanding its customer base, and increasing new builds to expand into new regions of Nigeria where mobile penetration remains low. PAT will also benefit from DPI’s experience in scaling towers companies, as the first institutional investor in Eaton Towers, another of Africa’s leading telecoms businesses it exited in 2019.
Giving Pan African Towers the leverage to capitalise on long-held ambitions
PAT was first licensed in the final quarter of 2017, entering into a managed service and colocation agreement for 700 towers. Primary expansion was through build-to-suit for their core MNO customer but have since expanded to work with all MNOs and ISPs in the market.
In 2022 PAT completed a merger with SWAP Technologies, becoming the 3rd largest towerco in Nigeria, and has around 1,000 sites in the market supporting 1,147 tenants at a healthy tenancy ratio of 1.60x.
The towerco has long had plans to expand organically but has remained around the 1,000-tower management mark since 2017. In line with the company’s name, PAT has also had pan-African ambitions, but so far the group has only a limited presence outside Nigeria with a 300-site lease agreement in Ghana.
However, a heavy presence in Nigeria has helped PAT become contractually flexible in co
mparison to its big towerco competitors (namely IHS Towers and American Towes), working on a no-dollar pricing system largely in local Niara with highly flexible contracts.
Dollarized contracts, while key to protecting the big towercos against local market devaluations, has not gone without challenge by MNOs, and reflected in recent tension between towercos and their partners. This has also enforced PAT’s funding strategy accessing local capital markets and working with local partners to maximize financing capabilities, largely in Niara.
Nigeria’s grid challenges means that towercos are deeply involved in power provision. While some towerco such as American Tower are delivering power in-house as power-as-a-service, PAT has been rather pioneering in partnering with ESCOs to share the extremely challenging and capital-intensive task of site power delivery.
Eaton Towers’ investor returns to the industry
DPI is an Africa-focused private investment firm with US$3.1bn in assets under management and co-investments across three funds, targeting high-growth, impact-driven, and innovation-led companies.
DPI’s three funds, African Development Partners I, II and III, are ranked in the top quartile for performance by Cambridge Associates. DPI currently manage 29 portfolio companies in 42 African countries across 21 industries.
DPI’s investment model is built off identifying fast-growing companies in high-growth sectors that deliver on wider social, environmental and economic benefits, especially for African consumers. The firm also has a strong emphasis on digital transformation to streamline and improve operational efficiencies.
Exit potential is also an important consideration in identifying investments, building up companies which have attractive exit opportunities. The involvement of DPI in Eaton Towers, a great example of organic towerco scaling and exciting to one of the larger M&A-driven towercos (American Tower), may offer foresight into the next strategic direction for PAT.
Adefolarin Ogunsanya, Partner at DPI, said: “Pan African Towers is an exciting homegrown business with significant potential and is uniquely positioned to benefit from the opportunity presented by Nigeria’s digital innovation boom.
“We are incredibly excited to partner with PAT’s management team to help crystallize the company’s vision of becoming Nigeria’s digital infrastructure provider of choice and look forward to sharing our deep knowledge and experience of Africa’s towers industry and the Nigerian market to help achieve this.”
Verod takes the dive into Africa’s tower space
Verod is a leading African investment management firm specialising in private equity, primarily focusing on high-growth businesses in Anglophone West Africa, particularly Nigeria and Ghana. The firm has over US$360mn in assets under management, investing in a wide range of sectors across healthcare, education, agribusiness, renewable energy, and consumer and services.
The firm also operates a venture capital arm, Verod-Kepple Africa Ventures, which invests in early-stage tech-enabled businesses across the African continent. Since its inception, Verod has raised over $400 million and has invested in more than 30 companies.
The backing of PAT will be Verod’s first venture into telecommunications and towercos, but fits well with the firm’s ethos, highlighting their appetite for investing in tech-enabling infrastructure that close gaps in the provision of public goods.
Verod are also focused on innovations that solve inefficiencies for existing African industries, complementing the efficiency that infrastructure sharing offers’ customers.
Both funds highlight their strong commitments to economic and social development in Africa, aligning their industry standards to the UN Sustainable Development Goals. Verod was the first Nigerian private equity firm and the first in West Africa to commit to the UN Principles for Responsible Investment (PRI) and COP22.
DPI has achieved 50% female representation with a female co-founder and CEO while Verod offers ILPA Diversity in Action initiatives and alignment with the 2X Challenge., helping to promote gender diversity in the industry and in Africa.
Daniel Adeoye, Principal and Head of Investments at Verod Capital, said: “The Nigerian demographic is currently experiencing a surge in data consumption and related services, driven by a generation of tech-savvy digital natives that are unparalleled.
“The ‘Verod Consumer Spend Index’ indicates that telecommunication expenses are increasing significantly, providing a tailwind for tower companies like PAT. Verod is delighted to support PAT’s management with ample capital and value-creation expertise to navigate this period of growth.”
Nigeria’s tower market remains as promising as it is challenging
Nigeria is Africa’s largest telecom tower market, and between Nigeria and South Africa form the bulk of towerco activity on the continent. But while the latter has been led by its developed economy and high rate of technology adoption, Nigeria is a market of huge opportunity with a rapidly growing and tech-savvy population.
Telecommunications contributed to 13% of Nigeria’s GDP in 2021 compared to just 8% in 2015, with 41,000 towers supporting 208 million subscribers. The Ministry of Communications estimates that the country needs between 70-80,000 towers in order to provide proper coverage and quality for 4G and 5G, creating a gap of 30,000 sites.
As a result, Nigeria is a market with a highly competitive towerco sector with 13 towercos (and counting) operating in the market. Combined, towercos own roughly 75% of all towers in country, with the remaining sites falling under Glo.
Despite the competition, there is more than enough market demand. Short-term headwinds have led to a general slowdown in BTS activity over the last year due to constrained MNO budgets, but this only increases the already large infrastructure gap in the market.
A major driver of this new infrastructure will be 5G, which has already seen limited rollout in major urban areas. MTN Nigeria, Airtel and Mafab have all made huge investments in spectrum auctions over the last 2 years and will need to deliver commercial services outlined in their licensing frameworks.
Towercos will need to play a critical role in delivering the capital to deploy new urban sites as well as structural upgrades for colocation and technology upgrades, supporting 3G, 4G and 5G from multiple MNOs all on one site.
5G will also demand innovations in tower design and alternative infrastructure services for towercos to capitalise on. ATC Nigeria is rolling out new urban street furniture and monopoles utilising limited space, while IHS Nigeria has a well-established fibre business to support backhaul.
PAT already offers limited DAS and inbuilding services, a verticle which has the potential to scale rapidly to support customer network needs, with a huge opportunity to scale organically through both macro and non-macro deployments.
On the opposite end of the connectivity spectrum, the NCC (Nigeria’s telecom regulatory authority) is ramping up rural penetration with MNOs moving into remote areas. IHS Towers operate around remote sites, and rural specialist AMN has entered the market to fill this gap offering a full active + passive revenue share service with their major partner MTN.
Part of PAT's new strategy is to reach new areas of low mobile penetration, but this doesn’t come without its challenges. IHS Towers has largely failed to deliver any meaningful returns on their rural sites, while AMN’s business model is reliant on an extremely highly tuned operating model that squeezes down capex and opex to the very minimum.
Finally, just like in the rest of Africa, power remains a priority for Nigerian towercos and will need to be a core part of PATs new strategic agenda. Diesel prices have fluctuated substantially, and over the 12 months prices have risen across all of Nigeria’s provinces.
With inflation leading to higher prices and lower consumer spending, and MNOs and their stakeholders demanding action on carbon emissions, towerco customers need cheaper and more sustainable energy.
Despite these challenges, PAT’s new investment backing comes at no better time for Nigeria, where MNOs are looking for fast deploying and flexible towercos to deliver on the services that their major partners don’t have the capacity or commercial appetite to provide.
