The continuing evolution of technology and rising demand for data is offering significant opportunities for corporates and investors to unlock value in the digital infrastructure space.

Over a two-year horizon, NAB has been lead arranger and/or underwriter on a series of six debt financing transactions involving mobile towers held within major telecommunications companies. Analysis of these transactions shows significantly higher enterprise multiples for the standalone tower businesses post-sale than what listed telecommunication companies typically trade for.

Gavin Hutchison is NAB Global Head of Leveraged Finance and Core Plus Infrastructure and says the sales in Australia and New Zealand follow a global trend revealing strong ongoing appetite for these types of assets, which has accelerated post-Covid-19.

“These transactions in particular have allowed telco operators to monetise undervalued assets by selling to infrastructure funds which have a lower cost of capital,” Hutchison says.

“The demand is being driven by the defensive nature of these assets, long-term access agreements with the telcos, and strong growth outlook from increases in data demand and co-tenancy. It really is a win-win and we’re pleased to be playing a leading role here with our clients.”

Hutchison says this style of transaction may involve a telco trading around, say, eight to 10 times their EBITDA which disposes of an asset that is undervalued on the balance sheet and then trades post-sale at 25 to 35 times their EBITDA as a standalone business.

The activity started in the local market with the September 2021 financial close on the sale of a 49 per cent stake of the Telstra towers business, which was subsequently rebranded to Amplitel. The $2.8 billion sale to a consortium comprising the Future Fund, Commonwealth Superannuation Corporation and Sunsuper and managed by Morrison & Co valued the business at a 28 times multiple of EBITDA.

Similar sales from Optus, Axicom, TPG Telecom and Vodafone NZ and Spark NZ followed. The six transactions examined represent an aggregate enterprise value of about $15.3 billion and more than $5 billion in syndicated debt raised.

EV multiples comparison chart

Source: NAB, with information from public announcements, share price data and annual reports (see endnotes¹)

Global momentum

Hutchison says the trend tracks similar moves offshore in Europe and the US, with a strong expectation this style of deal will expand into other areas of infrastructure with similar characteristics – like fibre for instance.

“We’ve seen some European telcos implement structural separations with external investors being brought in,” he says. “For example, KKR invested in Telenor’s fibre infrastructure in Norway² and TDC in Denmark separated its business between infrastructure and customer services³.

“Fibre is an attractive area because, similar to the towers, it’s held primarily by vertically integrated telcos with high capital intensity and strong growth prospects linked to underlying data demand.

“Telstra has recently completed a structural separation⁴ which would allow it to consider a sell-down of its fixed infrastructure assets, including fibre, data centres and associated infrastructure. There’s a huge wave of private capital in infrastructure buying these assets. That’s a global thematic. But there are other areas as well – it can go beyond digital.

“A developing trend offshore is to consider the outsourcing of communications as a service. This can involve a corporate or potentially a university campus contracting with a third party to provide its internal networking and communications requirements. If the parties can achieve relevant scale, we could see some similar opportunities here as well.”

Key drivers

Tim Glick is NAB Executive Director in the Specialised Finance team and led the initial Telstra deal among others.

He says the key drivers have been unlocking capital to re-invest in active mobile network equipment and the realisation that a future of 5G and beyond needs far greater network density, with the increased tower numbers to meet this.

“It’s more efficient for the corporates to share that infrastructure,” Glick says, noting in some cases the corporates have still retained an equity interest in the tower companies. “They can be multi-user, held privately and shared, while releasing capital at the same time.

“It’s highly likely there will continue to be other embedded assets that sit within telcos, but also in some cases within other corporates. These embedded assets could be better held through infrastructure investors where a fresh capital base can facilitate further investment in growth to attract new users with a different commercial focus.”

Model opportunities

Glick says the model involves finding an asset that is conducive to a contractual framework that is going to de-risk the asset from the point of view of the infrastructure investor and where the corporate can retain that potentially shared access without requiring ownership.

“This provides opportunity to the investor because they can see a pathway to growing revenue and value. For the corporate, the value is going to be primarily immediate capital release. It’s a case where you do see this multiple arbitrage and continue to have strong long-term access rights to the asset that’s currently on the books.”

Hutchison says the NAB team can provide specialised insights to clients who are either looking to monetise these types of assets or to purchase them, as well as underwriting the financing for these potential transactions, which may go beyond digital.

“It could be there’s other assets out there that this framework can be applied to that would create value for corporates and investment opportunities for infra funds,” he says.

“We can give an input into key commercial provisions around the actual underlying contracts and framework and also facilitate those transactions by using our financial structuring capability to make those deals happen.”

¹  Thomson Reuters data and public releases on deals listed:
Telstra finalises $2.8 billion InfraCo Towers sale
Optus announces sale of towers to AustralianSuper for AU$1.9 billion
TPG Telecom last out the door with $950m tower sale (afr.com)
Spark announces sale of 70% of TowerCo business for $900 million (sparknz.co.nz)
Macquarie Asset Management announces sale of Axicom to Australia Tower Network | Macquarie Group
InfraRed, Northleaf win Vodafone NZ towers auction (afr.com)
² Sale of 30% of the Norwegian Fibre business completed – Telenor Group
³ TDC NET – We connect Denmark. For everyone.
⁴ Telstra Corporation Limited: Scheme Booklet