As the first European towers deal of the year is now a reality, TowerXchange speaks with BNP Paribas, the financial adviser to the buyers on the transaction to see how it compares to what we have seen recently on the continent and for his views on the tower M&A market in 2024.
TowerXchange: Can you please introduce yourself, your company and the role you played in the Telekom Srbija (TS) deal?
Panos Metsis, Managing Director TMT, BNP Paribas:
I am a Managing Director at BNP Paribas, responsible for our Telecoms & Digital Infrastructure investment banking business in a number of European regions including the UK, the Nordics, the broader CEE/SEE region, the Netherlands and Switzerland – based in our London office. I have been involved in deal-making in the sector on a pan-European basis for well over 20 years, having witnessed a number of cycles. As far as CEE is concerned, my involvement traces back to my days as M&A executive at telecom operator OTE and my subsequent years with JPMorgan. BNP Paribas has successfully advised in three out of four recent towerco M&A transactions in the region, including as you point out Telekom Srbija towers where we acted as sole financial advisors to Actis and the winning consortium.
TowerXchange: According to information in Serbian media, which quote TS CEO Vladimir Lučić, more than 50 companies have applied to take part in the tender. The transaction value “is very significant, the price is equal to transactions in the EU.” What led to the high number of bidders? How do you account for the high interest in these non-Euro markets? Do you think this implies strong interest across all CEE markets for telecom towers?
Panos Metsis, Managing Director TMT, BNP Paribas:
I would simply say that any sale of substantial mobile tower portfolios, especially ones owned by incumbent telcos, and even more so portfolios of solely macro towers, is bound to attract significant initial interest. Whether this initial interest will translate into formal offers and competitive intensity in an auction does depend on the process format, timing, quality of vendor due diligence and marketing materials as well as suitors’ assessment of macro (incl. FX) and counterparty risk. I am convinced that there is an arbitrage opportunity across a number of CEE countries, given that a large part of the private market is still shying away from real asset transactions in those countries for legacy reasons or remit restrictions, while local investment capital availability is underdeveloped.
When planning our involvement in this transaction, our main aim was to source a buyer who was comfortable (including at investment committee level) with the jurisdictions and was experienced in towers – not necessarily the largest investor, but one nimble enough to navigate this process. We were vindicated with Actis. My hope is that this transaction will pave the way for more deals in these and adjacent markets. Digital infrastructure including towers is probably one of the best ways to play these particular markets, as long as a commensurate adjustment in target returns is made and the right consortium is formed (note here the potentially important role to be played by EBRD and IFC as co-investors to Actis).
TowerXchange: You have involvement in other CEE tower deals, how does this one compare to them or is it too different from an interest rate perspective to compare at present?
Panos Metsis, Managing Director TMT, BNP Paribas:
Depending on their deal structure and perimeter, tower transactions appeal to different parts of the infra investment community. For example our two past tower sales in the region (Polkomtel Infrastruktura and CETIN) included active equipment (RAN) which is still a rather niche space for investors, having a different risk and cash flow profile when compared to passive towers. CETIN involved a minority stake which opens up different possibilities across other pools of capital. I believe that all of them (including Telekom Srbija and United Towers) attracted substantial interest of varying degrees. I should perhaps mention one additional parameter that drives interest: suitors’ perception of sellers’ likelihood of agreeing and completing a deal. There have been situations in recent memory across the telco space where sellers have run processes, but in the end decided not to trade. Therefore, making sure to send the right signals from all levels (shareholders, management, advisors) that a seller is committed to a trade is a key ingredient to drumming up interest. This is even more important in relatively untested jurisdictions. Tower due diligence is not a low-cost exercise and parties embarking on it in earnest will want to be assured of a good chance of success.
TowerXchange: From your experience, is there any parallel that can be drawn between the two CEE transactions – Polkomtel’s majority stake acquisition by Cellnex and CETIN’s minority stake sale to Singapore’s GIC?
Panos Metsis, Managing Director TMT, BNP Paribas:
As I mentioned before, both transactions included active equipment - and were executed at a different point in the interest rate cycle. Every deal is different but at the heart of virtually all primary towerco disposals or sell-downs by telcos (including the above) lie two fundamental factors:
1) a seller’s willingness to improve its capital allocation by selling assets which are deemed to be somewhat non-core for its operations and
2) a long-term partnership between a telco and an investor (or a tower strategic).
A key distinction among transactions besides asset perimeters is the degree to which telcos are prepared to let go of such assets. Some likely took the view that tower MSA protections are sufficient and hence are comfortable with selling 100% of their portfolios. Others may feel less open to that (we have seen a large number of transactions which opted for a sizable minority or co-control structure). This is probably the No.1 debate facing telcos these days on the M&A front: how much of their digital infrastructure to dispose of and/or mutualise. Answers can differ depending on their respective strategies and capital needs. We are also now seeing some tower strategics grappling with the same questions. We are here to help shape, finance and execute these decisions.
TowerXchange: Can there be any comparison made between transactions in the West and East Europe?
Panos Metsis, Managing Director TMT, BNP Paribas:
They are all comparable and useful as benchmarks, with the appropriate adjustments. But every single market is different, depending on the number of MNOs, number of captive and independent towercos, the stage of development/rollout of mobile technologies, regulation and the topology of networks and geography of countries.
At BNP Paribas we are organised geographically as we believe that in-depth understanding of individual markets is key to successful M&A advice in digital infrastructure in particular. We continue to see ample tower M&A opportunity (primary and secondary) across both Western and Eastern Europe.
TowerXchange: Vantage Towers acquisition could be seen as the last deal of the low interest rates era and its highest valuation, how do you characterise the Telekom Srbija deal? What kind of deals should we expect to see?
Panos Metsis, Managing Director TMT, BNP Paribas:
The latest Vantage Towers transaction, which we helped finance, was indeed executed just before a turning point in the rates cycle. Besides its valuation level (which has been topped in the past e.g. in the Nordics) and size, it had interesting features such as its public to private nature and its intended JV nature. Clearly, 100% disposals such as Telekom Srbija’s, with a cohesive macro tower-only portfolio (no rooftops) are ‘cleaner’ deals that command a valuation premium, all other things being equal. Adjusting for a higher target rate of return due to macro, counter party risk and other factors that I mentioned earlier does then lead to appropriate counterbalancing discounts. For European telcos who invariably trade at single digit EBITDAaL multiples, face multiple capital calls and often a need to delever, such transactions can represent an actionable and attractive solution. My sense is that well-capitalised telcos with strong market/network positions may mostly continue to opt for minority tower sales to start with, while others with more stretched balance sheets will embrace control transactions, with stronger MSA/MLA and (in the case of sub-100% transactions) SHA protections.
Deals involving active equipment will remain the exception to the norm – we see a number of European operators showing real interest in the concept, but its implementation is far more complex than that of passive tower portfolios, while any valuation multiple uplift (vs telcos’ multiple) is limited. RANco carve-outs of this sort can certainly create significant value if executed properly, but in principle will take more time to execute, and the right match needs to be found between operators (as not all are compatible to each other). Regulatory developments are also key here, as RANcos are often seen as a fallback where MNO combinations are expected to be blocked or heavily remedied.
TowerXchange: There have been some recent minority stakes sales such as Cellnex’ business in the Nordics – is this creating value for investors?
Panos Metsis, Managing Director TMT, BNP Paribas:
This theme of secondary minority sales is indeed worth watching out for. A number of infrastructure funds remain particularly keen to supplement their infra or digital infra portfolios with tower exposure. Towers are for the most part highly yielding assets, which is often not the case in the current stage of the cycle of fibre and data centre development in Europe. Therefore, from a portfolio perspective, investing in towers makes sense for a number of these funds – whether it is in direct partnership with telcos or via a tower strategic. The syndication of the larger tower deals in Europe had perhaps crowded out demand for such secondary disposals for a period; however, as the Cellnex Nordics transaction and ongoing processes may have demonstrated, there is still significant untapped demand by operationally active funds who wish to deploy capital in this space and would not be content with a small passive minority stake of a larger syndication exercise.
TowerXchange: In summary, why were you the partner of choice for the acquisition? And how do you see your activities in the telecom tower markets developing over the next 12 months?
Panos Metsis, Managing Director TMT, BNP Paribas:
BNP Paribas has one of the largest and most experienced digital infrastructure Investment Banking teams on the street and has market-leading thinking across a number of subsectors including towers. On top of that, our credentials speak for themselves. That said, we do not rest on our laurels but instead adopt a particularly hands-on approach to planning the tactics, diligence, structuring and negotiation of a transaction to suit our clients’ interests. As the largest European bank with leadership across ancillary products including financing, we can maintain a bird’s eye view of a transaction, which should help improve the chances of our clients’ succeeding. In this particular case, positioning very early, using our boots on the ground in relevant countries and institutional relationships to help source the right types of equity and debt capital for the transaction, while still keeping a sizable transaction like this under wraps, were all in the end conducive to our client crossing the finishing line.
We continue to be very active in the broader space with many live digital infra mandates across Europe in a year that appears likely to be eventful. We are also hoping to reap the benefits of seeds planted with clients and prospective clients two or more years ago in terms of structures and deals that the market may now be ripe to accept. And at least one of these mandates currently involves CEE-based towers, but my expectation is that we will soon see more. The towers subsector remains an attractive investment destination for all the right reasons.
TowerXchange Meetup Europe which takes place on 23-24 April in Central Hall Westminster, London will discuss the European deals that have happened in the past 12 months. Join the event to hear what's next for M&A and involvements.
