Infrastructure investor Brookfield and Sweden’s largest pension fund, Alecta have invested €722mn to secure a 49% stake in Telia’s tower business in Norway and Finland. The deal is the latest transaction in the buoyant European tower market and places Telia’s tower business at an enterprise value of €1.52bn, representing an EV/EBITDA 2020 multiple of 27x. TowerXchange examines the transaction and the implications for the European tower market.
Telia has become the latest European operator to monetise its tower portfolio, announcing the sale of a 49% stake to infrastructure investor Brookfield, and Swedish pension fund Alecta. The deal covers Telia’s tower assets in Norway and Finland, but excludes their assets in Sweden, Denmark and the Baltics. The two investors have paid €722mn for the stake, placing the enterprise valuation of Telia’s assets at €1.52bn - and representing an EV/EBITDA 2020 multiple of 27x.
Telia had announced that it was exploring a potential monetisation of its towers back in its Q4’20 results. The operator had carved out their tower portfolios in Norway, Finland and Sweden and placed the separate towerco entities (named Telia Towers Norway, Telia Towers Finland and Telia Towers Sweden) into a new business unit, Telia Asset Management, with Telia Asset Management tasked with bringing in internal investment as the operator looked to crystallise the value of its digital infrastructure. Only ground based towers were transferred, with rooftop sites excluded for the time being. Notably, Telia’s tower assets in Denmark (which are owned by TT-Network, the joint venture with Telenor) were excluded from Telia Asset Management, and whilst the operator’s towers across the Baltics had not yet been moved into the business unit, Telia CEO Allison Kirkby had hinted that their Latvian assets would be transferred. Further assets could move to the entity in due course.
Rather than monetise Telia Asset Management and its multi-country footprint in its entirety (as Vodafone did with its towerco, Vantage Towers), Telia opted for a country-by-country approach. The plan was always for the Norwegian and Finnish assets to be monetised first, and no formal process had been announced for the Swedish tower portfolio (nor for assets in the Baltics or Denmark which are currently excluded from Telia Asset Management). In Sweden, Telia’s asset base is complicated by its involvement in an infrastructure sharing joint venture with Tele2 (SUNAB), whereas in Finland and Norway things are more straight forward. In Finland, Telia is understood to own just under 3,000 towers, whilst in Norway, their portfolio sits around 2,000 sites. The press release surrounding the stake sale states that the deal covers 4,700 sites “ suggesting that either our historic figures are slightly high, or a small subset of towers have been excluded from the deal.
For Telia, the deal gives them the opportunity to deleverage “ when the deal is completed, Telia’s net debt to EBITDA ration will be around 2.1x. The deal is however about more than access to capital and debt reduction, Telia had been clear that they had been looking for partners that would bring in expertise and prepare them for a world of 5G. Brookfield has a well-established footprint in the digital infrastructure space, with over 185,000 tower sites across India, France, the UK and New Zealand. The bulk of this portfolio is in India, following Brookfield’s 2020 acquisition of 135,000 towers from Reliance Jio, but Brookfield has been keen to enhance its European footprint. The company has been present in the French tower market since its 2015 investment in TDF, and entered the UK at the beginning of 2020 through the acquisition of Wireless Infrastructure Group. The deal with Telia adds two further countries to its European tower footprint and for Telia it brings an experienced investor in the tower and digital infrastructure space (with Brookfield’s investments also including 20,000km of fibre and over 50 data centres). Pension fund Alecta, one of the largest shareholders on the Stockholm stock exchange has a diversified asset base and deep ties in the Nordic region. Pension funds have been attracted to the tower asset class in recent years, with its stable long-term returns outperforming other sectors, and the Telia towers will provide an attractive addition to Alecta’s portfolio.
Figure 2: Brookfield’s towerco investments*
Could we see further tower monetisation from Telia?
For now, no formal plans to monetise further towers have been announced, although in their Q2 2021 results call, CEO, Allison Kirkby hinted that the operator may look to accelerate plans with their rooftops and Swedish assets. In Sweden things are complicated by Telia’ joint ventures. Telia owns around 1,600 sites whilst also having a 50% stake in SUNAB, an active infrastructure sharing joint venture with Tele2 which owns about 4,000 sites. Their joint venture partner, Tele2 is one of the few European operators yet to lay out any firm plans to carve out or monetise its tower portfolio, but Tele2 will need to be involved in any discussions about what to do with SUNAB. With the joint venture being based solely around 3G, and 3G being sunsetted in Sweden, the JV will need to be unwound “ whether the towers will return to their parent companies, or rather be sold remains to be seen.
In Denmark, Telia’s joint venture, TT-Network is much further reaching. Covering 2G, 3G and 4G technologies and recently extended to 5G “ the joint venture shows no sign of being wound down. Their joint venture partner in Denmark, Telenor, recently announced the formation of pan-Nordic towerco, Telenor Tower Holding “ with their stake in TT-Network also reported in Telenor Tower Holding’s tower counts, but for now, Telia has opted to exclude their Danish portfolio from Telia Asset Management.
In the Baltics, Telia has a presence in Estonia, Latvia, Lithuania and also Moldova and has hinted that their Latvian towers may move to Telia Asset Management. Whilst the Nordics has seen the entrance of the towerco model (Cellnex entering Denmark and Sweden through the acquisition of CK Hutchison’s sites; Digital Colony acquiring broadcast towerco Digita in Finland; and the presence of joint venture infracos widespread), towerco activity in the Baltics has, to date, been limited. We are however seeing the towerco model push further East in Europe, and the Baltics could present the next horizon for towercos or towerco investors looking to expand their footprint “ whether Brookfield or Alecta wishes to go on this journey, or whether Telia commences proceedings to monetise these assets, remains to be seen.
What does this mean for the European tower market?
The sale of a minority stake to Brookfield and Alecta marks another deal where an operator has chosen not to sell their tower portfolio to an independent towerco, preferring instead to pursue an alternative monetisation strategy whilst retaining control of their assets. Vodafone’s creation and IPO of Vantage Towers has been the most high-profile example of this in recent months, but Orange are another example set to also pursue such a route “ both seeing their towers as strategic assets and strong revenue generators.
Such a strategy is giving rise to a new breed of sizeable towercos in the European tower market “ operator-owned players, some of which, in addition to pursuing co-location and new build also have an appetite for M&A. Already we have seen Vantage Towers acquire Wind Hellas’ sites in Greece and form a joint venture towerco with TIM via INWIT. Telia and its new towerco investors are not speaking about M&A yet, but regardless of whether they are seeking inorganic growth opportunities, there is now a new towerco player on the block in the Nordics, and fewer tower portfolios currently available for independent players to make an entrance at scale in the region. That being said, as we have seen with Telefonica’s Telxius (which sold a stake to KKR and Pontegadea prior to being acquired by American Tower) and SFR’s Hivory (which sold a stake to KKR before being acquired by Cellnex), sometimes MNO-owned towercos can change tack, thus opening up further M&A opportunities for independent towercos.
The 27x multiple of the deal underscores the appetite for European tower portfolios, and other operators in the process of deciding what to do with their assets will be encouraged by the deal’s financials. There are a number of players in the midst of refining their tower strategies who have hinted an appetite to monetise a minority stake and the recent Telia deal shows significant appetite for such portfolios.
Figure 3: A snapshot of the tower strategies of Europe’s major MNOs
