Cellnex Telecom today announced an agreement with CK Hutchison to acquire 24.6k towers throughout Europe for €10bn. Additionally, the transaction includes a build-to-suit (BTS) program of up to 5.3k tower sites over the next eight years with an investment of €1.4bn. Transaction consideration of €10bn, is paid to CK Hutchison in the form of €8.6bn in cash and €1.4bn in the form of new Cellnex shares, representing a 5% stake in Cellnex.

Notably, Cellnex is pre-paying at close, for the future targeted build-to-suit (BTS) program. In terms of tower count, the BTS program comprises ~18% of the towers that Cellnex will own, as part of the transaction. Overall, the transaction is expected to be completed on a staggered, country-by-country basis over the next 18 months.

Cellnex and CK Hutchison – A Dominant European Force

Cellnex strengthens its position as a key Pan-European tower infrastructure provider, with a portfolio of 103k tower sites, once the transaction and build-to-suit program are complete.

Cellnex, Hutchison - Transaction Overview

The CK Hutchison portfolio strengthens Cellnex’s presence in three of its core markets, namely Italy, the UK and Ireland. Further, Cellnex will enter three new markets, being Sweden, Austria, and Denmark. Therefore, this gives Cellnex a presence in 12 European markets.

Specifically, the tower sites acquired and built by country are as follows:

  • Italy: 8.9k tower sites acquired and 1.1k new tower sites built
  • United Kingdom: 6.0k tower sites acquired and 600 new tower sites built
  • Ireland: 1.2k tower sites acquired and 100 new tower sites built
  • Sweden: 2.7k tower sites acquired and 2.6k new tower sites built
  • Denmark: 1.4k tower sites acquired and 500 new tower sites built
  • Austria: 4.5k tower sites acquired and 400 new tower sites built
Cellnex, Hutchison - Geographical Breakdown

CK Hutchison’s 24.6k tower sites across Europe have a tenancy ratio of 1.2x. This equates to 29.5k tenants with equipment on the company’s towers.

Transaction Valuation – Cellnex and CK Hutchison

Following completion of the transaction and planned build-to-suit, the deal will add €970m of EBITDA for Cellnex. Further, it will add Recurring Levered Free Cash Flow (RLFCF) of €620m, on a run-rate basis. Finally, Cellnex’s revenues will increase by €1.2bn to €3.8bn after completion of planned build-to-suit.

Recall, that the initial transaction consideration paid to CK Hutchison is €10bn. Additionally, after including the €1.4bn investment required for the Build-to-Suit (BTS) program of 5.3k new tower sites, the total Enterprise Value for the CK Hutchison transaction equates to €11.4bn.

Key valuation metrics for the transaction are as follows:

  • Year 1 EBITDA of €640m, equates to a multiple of 15.6x EBITDA, on the initial €10bn enterprise value
  • Run-Rate EBITDA of €970m, which includes the BTS program, equates to a multiple of 11.8x EBITDA, on the total €11.4bn enterprise value
  • Recurring Leveraged Free Cash Flow of €620m, equates to a Free Cash Flow Yield of 5.4%
  • Enterprise Value per tower (excluding the Build-to-Suit program) equates to €407k per tower, on the initial 24.6k tower sites
  • Enterprise Value per tower (including the Build-to-Suit program) equates to €382k per tower, on the total 29.9k tower sites

Based on the CK Hutchison deal and the recently announced acquisition of 7.0k Play tower sites in Poland, Cellnex has used up all of its dry powder from its recently completed capital raise in July 2020. Further, Cellnex’s balance sheet capacity, prohibits it from pursuing any further deals, without additional equity raises. Specifically, this is because Cellnex’s leverage, pro forma for the CK Hutchison deal, rises to ~6x by year-end 2021, post-close.

Lease Agreement with CK Hutchison

Cellnex and CK Hutchison will sign a long-term Master Service Agreement (MSA) for an initial period of 15 years. Additionally, the agreement is extendable for an additional 15-year period and subsequent 5-year periods (on an all-or-nothing basis).

In turn, this will allow Cellnex’s future contracted sales (i.e., backlog) to grow by €33bn up to €86bn. Furthermore, a significant proportion of the backlog comes from the anchor tenant, CK Hutchison, which has an A- credit rating.

Analysis – Cellnex and CK Hutchison Deal

Notably, 65% of CK Hutchison’s towers sites (16.1k tower sites) are within Cellnex’s existing geographies of Italy, the United Kingdom and Ireland. Therefore, Cellnex has the opportunity to reap considerable synergies from its combined tower footprint.

For CK Hutchison, the transaction allows the company to increase its focus on developing its network, while accelerating the roll-out of 5G across Europe.

Transaction Advisors – Cellnex

Cellnex was advised by legal advisor Clifford Chance, financial advisor AZ Capital, financial advisor HSBC, financial/tax due diligence advisor Price Waterhouse Coopers and commercial advisor Arthur D. Little.

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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