Nomura’s deal making streak

In September Cellnex announced it had scored a deal with Stonepeak to acquire 49% of its Scandinavian business. In early, November GLIL announced it had acquired a minority stake in the UK’s largest tower owner Cornerstone. Then a few weeks ago Banglalink announced Bangladesh’s first sale and leaseback with Summit Towers. One name linked all these deals Nomura’s Global Head of Digital Infrastructure Investment Banking, Andrei Milekhin. TowerXchange sat down with late 2023’s busiest man in towers.

I am Managing Director and Global Head of Digital Infrastructure Investment Banking at Nomura. Before this I worked at Vimplecom (now VEON) and in TMT Investment Banking at UBS.

In 2018 I joined Nomura to build the digital infrastructure practice from scratch. To date, Nomura Greentech employs eight experts with a sector focus including telecom infrastructure, data centres and fibre networks and we are looking to expand further. We also work hand in hand with our teams on the ground in Italy, France, Spain and elsewhere. This broad network allows us to leverage our connectivity with buyers and sellers of assets across our markets of focus.

The three recently announced deals are a result of our long-standing ties to industry. Our engagements with Stonepeak, GLIL and Banglalink all go back years.

Bangladesh has a unique licencing regime which prevents mobile operators building their own towers. But VEON has been looking to sell its Banglalink towers for some time and an original sale was mooted in 2013 or 2014. The deal gained momentum since licencing issues were solved and the and four towerco began operations in the country. That is when the process really took off.

The market owes a lot of kudos to Banglalink and Summit Towers for getting the deal done and moving quickly once the pieces were in place. As in any deal, there were definitely peculiarities and challenges, but Banglalink has had a positive experience working with Summit on build-to-suit and were confident in getting the deal done. Summit Towers are the only locally controlled towerco and were ideally placed for the first sale and leaseback transaction with an independent towerco in the country. The deal is will close subject to the usual regulatory approvals.

We expect to see further activity in Bangladesh. Banglalink sold only a portion of their portfolio and retain approx. 2,500 towers which could be sold later. Grameenphone has already explored a tower sale but couldn’t find a buyer, so perhaps with this news they’ll be reconsidering their approach.

Bangladesh is an active market and we will watch with interest to see how things play out for the four towercos. There may be some towerco consolidation in the market or additional towercos formed if the licencing authority allows it.

The logic for Stonepeak’s investment was quite simple and boils down to a combination of organic growth potential, strategic optionality, and the long-term opportunity to partner with Cellnex. There’s still quite a bit of growth built into the business in Sweden and Denmark where Cellnex has with BTS programmes contracted with Hutchison. This contracted growth was one of the attractive features in this transaction.

The market structure in both countries also means there’s scope for M&A to expand the businesses. There are also opportunities for cost optimisation through land acquisition in both markets.

The other attractive point for Stonepeak was around the structure of the transaction which provided meaningful downside protection for them. Cellnex sells at a high price, Stonepeak gets certain downside protection, enters new markets and secures a new long-term partner. Everyone is happy.

The strategies of listed towercos have been quite different. Cellnex has acquired a lot over the years, whereas American Tower has prioritised major markets.

Cellnex is now on a deleveraging path. That affects their chances to do meaningful new deals, but they have already built meaningful scale. This period of slower M&A gives them a chance to integrate these assets and rationalise operations.

But towers are still a fundamentally appealing asset class. You have contractually visible revenues with an attractive yield. Some towercos are more appealing than others. For example, in some markets you see capped escalators which hurt valuations, some are hampered by government structure or held back by market fundamentals. There’s not universal opportunity for every tower opportunity but where the conditions are right there are buyers out there.

GLIL is a UK based pension investor which has been following the Cornerstone opportunity for at least a couple of years. Nomura had advised on similar deals in Europe, for example on the minority stake in INWIT. We also advised Allianz on its investment in ATC Europe. Hence, were a natural choice for GLIL as they were looking for an advisor to help them with a potential investment in Cornerstone.

GLIL were looking for an opportunity that matched their returns profile and Cornerstone fit the bill. Cornerstone comes with relationships with Virgin Media O2 and Vodafone built in too. Cornerstone is the largest tower owners in the UK and has contractual relationship with two out of four major operators. It is a super attractive investment proposition with significant cashflow visibility and long-term MSAs.

It wasn’t just GLIL that saw the UK market and Cornerstone as attractive investment targets. GLIL’s presence in the UK certainly made it comfortable with the opportunity, but many investors participated in this process, including some US-based firms that were part of the process even into phase two. But it is in the nature of a UK pension fund to look at UK opportunities.

During the process the Vodafone and 3 merger was announced. Clearly this became a feature in the negotiations, but GLIL got comfortable with the risks and opportunities the merger brings. There may be some risk with consolidation across Cornerstone and MBNL (where 3 is an anchor tenant), but there are also upsides to a rationalised network or from a stronger anchor tenant.

We see more activity in the UK tower space coming. There are still a few assets left that could come up for sale because not all investors are prepared to back them in the long run. And some assets are still controlled by telecom operators. First the market needs to see how the Vodafone-3 merger plays out and its impact on build-to-suit and future deal making.

This market segment is hard to predict. If you would have asked me 12 months ago, I wouldn’t have told you that towers would be our busiest sub-sector, but it was!

I expect to see more activity over the next 12 months. Cellnex will continue to rationalise their portfolio. A few operators in Europe continue to own tower assets and we expect these to sell. Telenor needs to decide what to do with its assets in Asia. Orange still hasn’t done anything strategic with TOTEM. And there’s some single country operators too which retain attractive towers.

We won’t see a year like 2020 or 2021 when we saw a wave of deals, but we will still be busy. We’re getting ready.