Boingo Wireless (NASDAQ: WIFI), is up for sale. Specifically, the company gave investors strong assurances on its Q3 2020 earnings call, that it is putting the best interest of its stockholders first. Below, we provide an overview of Boingo Wireless, what the company does, an update on some recent & telling disclosures from its Q3 2020 earnings report, a brief snapshot of its valuation and discuss who the potential buyers could be.

Boingo Wireless – Company Overview

Boingo Wireless acquires long-term wireless rights at large venues like airports, transportation hubs, stadiums & arenas, military bases, multi-family properties, universities, convention centers, and office campuses. At these venues, the company builds high-quality wireless networks such as distributed antenna systems (DAS), Wi-Fi, and small cells. Further, Boingo monetizes these wireless networks through a number of products and services.

Overall, the company operates 73 DAS networks, containing 40.8k DAS nodes. This makes Boingo the largest operator of indoor DAS networks in the world. Additionally, the company has a Wi-Fi network business of over 1.3 million commercial Wi-Fi hotspots. These Wi-Fi hotspots are located in more than 100 countries worldwide.

Boingo Wireless - Company Overview

Revenue Model of Boingo Wireless

Boingo Wireless’ operations can be segmented into two broad categories: i) business-to-business and ii) business-to-consumer.

(1) Business-to-Business Segments
  1. DAS and Small Cells (Wholesale DAS): revenue from telecom operators that pay build-out fees and recurring access fees to Boingo. In turn, these telecom operators allow their cellular customers to use Boingo’s DAS or small cell networks, at locations where Boingo manages and operates the wireless network.
  2. Multi-Family: revenue from property owners who purchase network installation services and recurring monthly Wi-Fi services and support.
  3. Wholesale Wi-Fi: customers include telecom operators, cable companies, technology companies, and enterprise software/services companies. These customers pay Boingo usage-based Wi-Fi network access and software licensing fees to allow their customers’ access Boingo’s footprint worldwide.

End customers of Boingo’s business-to-business segments include carriers (AT&T, Verizon, and T-Mobile) and venues.

(2) Business-to-Consumer Segments
  1. Military: revenue from military personnel who purchase Wi-Fi services on military bases. Specifically, Boingo’s Military subscriber base was ~136k, at the end of September 2020.
  2. Retail: revenue from consumers who purchase a recurring monthly subscription plan or one-time Wi-Fi access. Specifically, Boingo’s Retail subscriber base was ~49k at the end of September 2020.
  3. Advertising: revenue from advertisers that seek to reach consumers via sponsored Wi-Fi access.

Overall, the key takeaway for Boingo is that 95% of the company’s revenues are either contractual or recurring.

Boingo Wireless – Media Reports

On February 24, 2020, Bloomberg released an article titled “Boingo Wireless Said to Explore Sale After Takeover Interest”. The article included the following excerpts:

  • Boingo Wireless “is exploring a potential sale after receiving takeover interest”
  • The company is “is working with an adviser to explore its options and field potential offers”
  • “Boingo could attract private equity firms, infrastructure funds or strategic buyers”

In March 2020, Boingo disclosed that it had received multiple inquiries regarding a potential strategic transaction. Additionally, the company stated that its Board had engaged advisors to assess these opportunities.

Since February 24th, when the Bloomberg reports were released, the stock has traded down from $14.25 per share to $12.73 per share, an 11% decline. However, the stock has experienced recent strength since October 26th, when it traded as low as $8.76 per share. Over the past 13 trading sessions, the stock is up 45%, given the increased likelihood that the company will now imminently be sold.

Boingo Wireless – Q3 2020 Update

From an operational perspective Boingo Wireless had several notable wins during the quarter. Firstly, the company signed a long-term agreement with San Diego State University for a distributed antenna systems (DAS) network at its football stadium. Secondly, the company launched a Wi-Fi 6 network (the latest version of Wi-Fi) at São Paulo International Airport.

As of Q3 2020, Boingo has a backlog of 65 DAS venues and 11.6k DAS nodes, providing the company with a solid growth path into 2021. Further, management also was positive on its nascent tower business and carrier demand to have tower sites on military bases. Overall, Boingo has an attractive long-term pipeline, with 25k+ potential DAS venues. Furthermore, the company’s total addressable market is significant and underpenetrated.

Management Commentary from Q3 2020 Earnings Call – Boingo Wireless For Sale

Below are a few excerpts from Boingo Wireless’ management on its Q3 2020 earnings call. These excerpts are meant to highlight that the company is for sale.

There continues to be strong interest and engagement from multiple parties, and based upon that, we continue to run the strategic review process to evaluate opportunities that we believe would be in the best interest of our stockholders.

Michael Finley, Chief Executive Officer – November 9, 2020

We are continuing to engage with multiple interested parties regarding a potential strategic transaction as announced and discussed in prior earnings calls.

Peter Hovenier, Chief Financial Officer – November 9, 2020

Further, Oppenheimer analyst Timothy Horan asked Boingo management: “Do you have a formal book out? And if so, when did you put it out there?”. Specifically, the analyst is asking Boingo whether there is confidential information being used as marketing materials, in order to sell the Boingo business to third-parties. In response, to this question, Boingo management stated:

Yes… we engaged a strategic adviser to advise the company and our Board. And yes, they’ve been engaging with parties, and there’s information out there with parties who are under NDA.

Peter Hovenier, Chief Financial Officer – November 9, 2020

Transaction Costs Disclosure – Boingo Wireless For Sale

The final piece of information which can be used to assess whether Boingo Wireless is for sale, are its public filings. Below, is a disclosure, excerpted from Boingo’s Q3 2020 10-Q filing. The disclosure is specifically Boingo’s figures for Reconciliation of Net Loss Attributable to Common Stockholders to Adjusted EBITDA.

Boingo Wireless - Q3 2020 Update

For the nine months ended, September 30, 2020, Boingo has accrued for $1.2m of “Transaction Costs”. This includes an additional $121k accrual taken during the third-quarter of 2020. Although this could be construed as an incremental expense, thus negative, it is in fact a positive sign of the sale process. By Boingo accruing for these transaction costs, it is an indication that the company believes it is likely to have to pay them, once the transaction is announced. Therefore, Boingo is accruing for these expenses, knowing that it will likely have to incur them in cash, in the near future.

Boingo Wireless – Ratings and Valuation

Below is a breakdown of the key Wall Street analyst ratings and price targets for Boingo Wireless. These price targets are usually set on a year-end basis. Thus, these price targets generally are projections for December 31, 2020.

Equity Research Analyst Ratings

Out of the eight analysts below, which disclose a specific stock price for Boingo, the range of price targets is between a low of $15.00 per share by Oppenheimer and a high of $23.00 per share from Roth Capital Partners. Generally, most analysts have a price target of $18.00 per share, or higher for the company.

Boingo Wireless - Equity Research Analyst Ratings

Below is one excerpt from a recent report by Oppenheimer Analyst, Timothy Horan. Importantly, he upgraded Boingo Wireless from Perform to Outperform and put a $15.00 price target on the stock, as of October 26th. Below is an excerpt from his report, which specifically references that Boingo Wireless is for sale.

We believe there’s a high probability Boingo sells part or all of its business to towers or an infrastructure-focused private equity firm in the next year. A strategic buyer could improve EBITDA by $15M on unnecessary overhead expenses alone. Plus, there’s a strong appetite for wireless infrastructure, shown by multiple recent transactions.

Timothy Horan, Oppenheimer – October 26, 2020

Valuation – Enterprise Value / EBITDA

As a reference point, Boingo’s most recent stock price as of trading close on November 12, 2020 (seen below) was $12.73 per share. Below we highlight Boingo’s valuation multiples under three scenarios: i) Boingo’s current stock price, ii) Boingo’s stock price at the low-end of Analyst estimates and, iii) Boingo’s stock price at the high-end of Analyst estimates.

Boingo is currently trading at $12.73 per share, which equates to a valuation of 8.3x EBITDA (as seen below). Assuming, Boingo were to achieve the low-end of analyst estimates, of $15.00 per share, the company would be trading at 9.8x EBITDA, representing an ~18% upside from current stock price levels. Finally, assuming, Boingo were to achieve the high-end of analyst estimates, of $23.00 per share, the company would be trading at 13.4x EBITDA, representing an ~81% upside from current stock price levels.

Boingo Wireless - EV-EBITDA Valuation

Overall, Boingo shares trade at an attractive valuation of 8.3x estimated EBITDA of $82.5m in 2020. With the above metrics for Boingo, it is relevant to compare Boingo’s valuation metrics to other sectors of digital infrastructure, in order to get a sense of whether the valuations are realistic. Additionally, the reason why Boingo is not being compared to other publicly-traded Small Cells & DAS companies is because there simply are no other publicly-traded companies, that exist in the same sector. Therefore, it is prudent to compare Boingo’s valuation to other sectors of digital infrastructure.

Specifically, comparisons to towers, data centers and fiber companies are made below:

Towers
  • American Tower, Crown Castle, and SBA Communications are currently trading between 25x to 30x EBITDA.
Data Centers
  • Equinix, Digital Realty, CyrusOne, CoreSite, and QTS are currently trading between 24x to 30x EBITDA.
Fiber
  • Currently trading between 12x to 16x EBITDA, based on public comparables and precedent M&A transactions.

Therefore, not only does Boingo trade at a material valuation discount to all other sectors of digital infrastructure but it has many of the same customers (AT&T, Verizon, and T-Mobile) on long-term contracts as those other digital infrastructure companies.

Additionally, given the valuation disconnect, in terms of EBITDA multiples, Boingo could be an accretive acquisition to those very same buyers, particularly tower companies.

Boingo Wireless For Sale – Who Is the Buyer?

Below, specific companies are highlighted that represent logical potential buyers for Boingo. These companies have not stated that they would buy Boingo, but rather they are provided as an educated assumption, based on publicly-available information.

Additionally, all of these companies have been active investors in digital infrastructure. They have each acquired similar companies to Boingo, or companies within adjacent sectors of digital infrastructure such as Towers or Data Centers. Where applicable, we highlight some of the relevant prior digital infrastructure transactions, which each of these companies has made.

Boingo Wireless - Who is the Buyer

(1) Strategics (TowerCos)

These buyers share the same key customer base as Boingo. Specifically, AT&T, Verizon, and T-Mobile are all key customers for tower companies. Having the same customer overlap and relationship, allows TowerCo buyers to do even more business with those customers, by offering Boingo’s services. Example buyers and rationale include:

American Tower

Owns one of the largest distributed antenna systems (DAS) businesses in the United States. Indeed, this makes Boing a key complementary business.

Crown Castle

Owns one of the largest small cell businesses in the United States. Specifically, Crown Castle had ~48k small cells on-air as of Q3 2020.

SBA Communications

Previously owned ExteNet, a close competitor to Boingo, which it sold-off in 2015. Therefore, unlikely to re-enter the sector again through Boingo now.

(2) Infrastructure Funds

These buyers were specifically mentioned, as a group, in the Bloomberg article. Example buyers and rationale include:

Colony Capital

Owns ExteNet, which is Boingo’s closest competitor. ExteNet operates 31.0k small cell nodes, 600 C-RAN hubs, 4.0k owned fiber route miles and 16.0k leased fiber route miles across the United States.

Stonepeak Infrastructure

Also owns ExteNet, alongside Colony Capital. The two could partner together on the acquisition of Boingo.

Brookfield Infrastructure

Acquired Brazilian data center provider Ascenty, alongside Digital Realty for $1.8bn. Further, Brookfield acquired Evoque, which were 31 data centers, done through a sale-and-leaseback with AT&T for $1.1bn. Finally, Brookfield was the initial bidder in the take-private of Cincinnati Bell (NYSE: CBB), a fiber provider, with a $2.6bn bid.

I Squared Capital

Acquired the Infrastructure Division, comprised mainly of fiber, of publicly-traded GTT Communications for $2.15bn in October 2020.

Macquarie Infrastructure

Acquired AirTrunk, an Australian data center operator, from Goldman Sachs and TPG Capital for $2.1bn. Additionally, Macquarie was the winning bidder in the take-private of Cincinnati Bell (NYSE: CBB), a fiber provider, with a $3bn bid. Macquarie beat out Brookfield, in this process.

EQT

Acquired Zayo alongside Colony Capital for $14.3bn transaction. Additionally, EQT acquired data center provider EdgeConneX, for $2.7bn, in August 2020.

(3) Private Equity

These buyers have funds that are more generalist in nature, compared to the Infrastructure Funds. However, they have still invested in digital infrastructure companies, as part of their strategy. Example buyers and rationale include:

Blackstone

Were one of the bidders in the auction of Interxion, a European data center provider. Ultimately, Interxion was sold to Digital Realty for $8.4bn.

KKR

Acquired 40% of Telxius, at a €3.7bn valuation, which is Telefónica’s (Spanish carrier) infrastructure business for subsea cables and cellular towers. Additionally, KKR acquired Hyperoptic, a UK fiber-to-the-home provider, for £500m. Finally, KKR acquired 50% of SFR TowerCo, at a €3.9bn valuation, which comprised 10.2k towers sites across France, operated by carrier Altice France.

GI Partners

Invested in DR Fortress, a data center business in Hawaii, in January 2020. Additionally, GI Partners acquired Blue Stream Fiber, a high-speed broadband provider in Florida, in June 2020. Prior exited investments, by GI Partners, in the digital infrastructure sector include Telx Group a data center provider, ViaWest a data center provider, and Wave Broadband a fiber-to-the-home provider.

Berkshire Partners

Acquired Teraco, a South African data center provider, for $1.0bn. Additionally, Berkshire Partners owned Lightower Fiber Networks, a U.S. fiber provider, which was sold to Crown Castle for $7.2bn. Finally, Berkshire Partners owned Telx Group, a U.S. data center provider, which was sold to Digital Realty for $1.9bn.

ABRY Partners

Owned European data center provider e-shelter, which was sold to NTT Communications for $833m. Additionally, ABRY Partners also owned Telx Group, in partnership with Berkshire Partners.

(4) Pension or Sovereign Wealth Funds

Overall, the Pension and Sovereign Wealth Fund buyers are the least likely of the four groupings to be the buyer of Boingo. However, it is worth highlighting these buyers, as they have been active in the digital infrastructure sector, in the past.

Canadian Pension Funds

These buyers include the Canada Pension Plan Investment Board (CPPIB), Ontario Teachers’ Pension Plan (OTPP) and OMERS (Ontario Municipal Employees Retirement System). As an example, OTPP has owned Compass Datacenters, a U.S. and Canada data center provider, which was sold to the Azrieli Group for ~$700m. Further, OTPP also owned Metronode, an Australian data center provider, which was sold to Equinix for ~$800m.

Singaporean Sovereign Wealth Funds

Finally, the Singaporean sovereign wealth funds GIC and Temasek are also active investors in digital infrastructure. Notably, Equinix and GIC have an ongoing joint venture to build hyperscale data center facilities in Europe and Asia.

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