Cellnex Telecom today announced an agreement with Cyfrowy Polsat to acquire its digital infrastructure subsidiary Polkomtel Infrastruktura, which owns 7.0k towers in Poland, for €1.58bn. Additionally, the transaction includes a build-to-suit (BTS) program of up to 1.5k tower sites over the next 10 years with an investment of €0.6bn.

As part of the transaction, Cellnex is also acquiring 7.0k miles (11.3k kilometers) of fiber backbone and fiber-to-the-tower backhaul. Finally, the transaction includes active infrastructure, including 37k radio carriers covering all the bands available to Polish wireless carriers, used for 2G, 3G, 4G, and 5G technologies and a national network of microwave radio links. Overall, the deal will close in the first-half of 2022.

Anchor Tenant for Cellnex’s Towers – Cyfrowy Polsat

Cellnex is acquiring the tower company Polkomtel Infrastruktura, which owns 7.0k sites that primarily serve Plus, a wireless carrier in Poland, whose parent company is Cyfrowy Polsat. Specifically, Cellnex will sign a long-term Master Service Agreement (MSA) for an initial period of 25 years. Additionally, the Master Service Agreement (MSA) will have automatic renewals for subsequent 15-year periods on an all-or-nothing basis. Finally, Cellnex also has inflation-linked contractual rental increases with Cyfrowy Polsat, the anchor tenant.

Cellnex Polkomtel Infrastruktura Towers Poland Cyfrowy Polsat Map

Overall, the acquisition of Polkomtel Infrastruktura’s towers in Poland increases Cellnex’s future contracted sales (i.e., backlog) by €10bn, to €110bn.

Physical Towers Infrastructure

Polkomtel Infrastruktura’s 7.0k tower sites in Poland have a tenancy ratio of 1.2x. Indeed, this equates to 8.4k tenants with equipment on the company’s towers. From a physical standpoint, 55% of the towers are ground-based and 45% are rooftop sites.

Transaction Rationale – Cellnex and Polkomtel Infrastruktura Towers

For Cellnex, the Polkomtel Infrastruktura acquisition represents the company’s second deal in Poland and has two key points of rationale.

Firstly, the transaction allows Cellnex to consolidate and strengthen its position in Poland following the recent announcement to acquire towers from Play. Indeed, in October 2020, Cellnex partnered with Iliad in a €2.6bn deal, to acquire 7.0k towers from wireless carrier Play in Poland.

Secondly, the Polkomtel Infrastruktura deal exemplifies Cellnex’s shift in strategy from simply the traditional tower operator model. Indeed, the company is now pursuing an infrastructure management model. Specifically, Cellnex is combining passive infrastructure such as towers with active infrastructure such as transmission equipment, radio links and fiber-to-the-tower.

Expansion into Active Infrastructure

Cellnex currently operates active infrastructure in several markets across Europe, such as France. Specifically, in France, the company has already signed agreements to roll-out and operate fiber backbone & backhaul, manage data centers for the purposes of 5G edge computing, and operates distributed antenna systems (DAS) in sports & commercial venues, hospitals, and transport networks.

Tower Company Passive and Active Infrastructure

Cellnex’s strategic shift into active infrastructure helps broaden the company’s development and growth options in Europe within digital infrastructure.

Transaction Valuation – Polkomtel Infrastruktura Towers

At the time of acquisition, Polkomtel Infrastruktura will generate €190m of EBITDA, €120m of EBITDA after leases (EBITDAaL), and Recurring Leveraged Free Cash Flow (RLFCF) of €80m. Following completion of the transaction and planned build-to-suit, the deal will add €330m of EBITDA and €225m of EBITDAaL for Cellnex. Further, it will add Recurring Levered Free Cash Flow (RLFCF) of €150m, on a run-rate basis.

Recall, that the initial transaction consideration for Polkomtel Infrastruktura’s towers paid by Cellnex to Cyfrowy Polsat is €1.58bn. Additionally, after including the €0.6bn investment required for the Build-to-Suit (BTS) program of 1.5k new tower sites, the total Enterprise Value for the Polkomtel Infrastruktura transaction equates to €2.18bn.

Key Valuation Metrics Paid by Cellnex for Polkomtel Infrastruktura Towers:

EBITDA Valuation

  • Year 1 EBITDA of €190m, equates to a multiple of 8.3x EBITDA, on the initial €1.58bn enterprise value
  • Run-Rate EBITDA of €330m, including BTS program, equates to a multiple of 6.6x EBITDA, on the total €2.18bn enterprise value

EBITDA after leases (EBITDAaL) Valuation

  • Year 1 EBITDAaL of €120m, equates to a multiple of 13.2x EBITDAaL, on the initial €1.58bn enterprise value
  • Run-Rate EBITDAaL of €225m, including BTS program, equates to a multiple of 9.7x EBITDAaL, on the total €2.18bn enterprise value

Recurring Leveraged Free Cash Flow Valuation

  • Year 1 Recurring Leveraged Free Cash Flow of €80m, equates to a Free Cash Flow Yield of 5.1%
  • Run-Rate Recurring Leveraged Free Cash Flow of €150m, equates to a Free Cash Flow Yield of 6.9%

Enterprise Value per Tower Valuation

  • Year 1 Enterprise Value per tower (excluding Build-to-Suit program) equates to €226k per tower, on the initial 7.0k tower sites
  • Run-Rate Enterprise Value per tower (including Build-to-Suit program) equates to €256k per tower, on the total 8.5k tower sites

For further comparable transactions, check out our comprehensive list of towers precedent M&A transactions here.

Equity Capital of €7bn for Cellnex in Poland and Beyond

To continue financing its acquisition-fueled growth, Cellnex announced, in February 2021, that it plans to raise up to €7bn of new equity capital. Indeed, this capital raise is fully underwritten by J.P. Morgan, Barclays, BNP Paribas, and Goldman Sachs, acting as Global Coordinators and Joint Bookrunners. The capital raise of up to €7bn, is anticipated to be complete by the end of March 2021.

Cellnex Capital Raise Sources and Uses

With €7bn of new equity capital, Cellnex will be able to finance its portfolio of pending acquisitions, worth up to €18bn in deal value, over the next 18 months. Indeed, 50% of this portfolio is already committed through today’s agreement to acquire Polkomtel Infrastruktura, the €5.2bn acquisition of Hivory in France, and the €645m deal to integrate Deutsche Telekom towers in the Netherlands.

Cellnex Telecom – Overview

Cellnex Telecom is Europe’s largest independent operator of wireless telecommunications and broadcasting infrastructure. Indeed, the company has a portfolio of 128k sites, pro forma for acquisitions and planned build-to-suit (BTS) programs. To-date, Cellnex has 75k of the 128k sites in its portfolio, with the rest in the process of being completed or part of planned roll-outs through 2028.

Overall, Cellnex operates in Spain, Italy, the Netherlands, France, Switzerland, the UK, Ireland, Portugal, Austria, Denmark, Sweden, and Poland. The company has key institutional shareholders including Edizione, GIC, ADIA, Canada Pension Plan, CriteriaCaixa, Blackrock, and Wellington Management.

Adam Simmons is the Founder & CEO of Dgtl Infra. He started his career with an S&P 500-listed big box retailer, in an operations management role. Adam's entrepreneurial "itch" led him to start a 5G-driven company, focused on innovative retail solutions using augmented reality and shoppable videos, which was eventually sold to an advertising and consulting group. After, realizing the potential of 5G, Adam shifted his efforts towards investing in the "building blocks" of 5G - known as digital infrastructure, completing a number of strategic investments, buying cellular towers, data centers and fiber networks.

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