Cellnex Telecom a tower company, Iliad a French carrier and Play a Polish carrier have combined to grow together in a 7.0k tower transaction in Poland.

Cellnex Telecom is the largest independent tower company in Europe. The company operates 60.9k towers across Europe including the United Kingdom, France, Spain, Italy, Portugal, Switzerland, the Netherlands, and Ireland. Cellnex is listed on the Spanish stock exchange, under the ticker CLNX. The companyis part of the IBEX 35 and EuroStoxx 600 indices.

Iliad is the third largest carrier in France, operating under the brand Free. The company has 19.7 million subscribers in France (including 6.3 million broadband subscribers and 13.4 million mobile subscribers). Additionally, Iliad the fourth largest carrier in Italy with 6.3 million mobile subscribers, representing an 8% market share.

Play is the largest carrier in the Polish market with a 29% market share, 15.0m subscribers and revenue of €1.6bn.

Situation Overview

The combination of Cellnex, Iliad, and Play creates what is quite a unique transaction, with two steps. First, Iliad a carrier which operates in France and Italy, is acquiring Play another carrier which operates in Poland. Then, as a second step, Iliad is selling off a majority interest in Play’s digital infrastructure, specifically their tower assets, to Cellnex, which is a tower company and digital infrastructure owner.

This article mainly focuses on the digital infrastructure portion of the transaction which involves Cellnex buying Play’s tower assets by partnering with Iliad. However, it is important to understand how Cellnex secured this tower carve-out opportunity. And it did this, by partnering with a like-minded counterpart in Iliad.

Iliad and Play – Transaction Overview

Iliad and Play - Transaction Overview

Iliad launched a takeover bid for Play on September 21st at a price of PLN 39 per share. This translates into to a price for 100% of the company of €2.2bn, or €3.5bn including debt. The Iliad and Play transaction is expected to close by November 25th.

Earlier in September, Iliad signed a binding agreement to purchase a 40% controlling interest from Play’s two key shareholders, Kenbourne Invest and Tollerton Investments, for PLN 39 per share. This gives Iliad the majority of seats on Play’s board of directors. Iliad has since launched a public bid for the remaining 60% of Play shares at the same price.

Iliad and Play - Positioning Within Europe

Combined, Iliad and Play would have 34.7 million mobile subscribers (see above). This positions the company as the 6th largest European carrier, ahead of BT Group but behind Vodafone, Deutsche Telekom, Telefónica, Orange S.A. and Three UK.

On October 14th, Reuters reported that the European Commission would grant the Iliad and Play deal approval from an anti-trust clearance perspective. This forthcoming European Commission approval paved the way for Cellnex to proceed with its portion of the transaction. As a result, Play’s tower assets, would be carved-out by Cellnex, in partnership with Iliad.

Cellnex – Transaction Overview

Cellnex Footprint Expansion

Cellnex today reached an agreement with Iliad to acquire the network of 7.0k Play tower sites (Play TowerCo) in Poland, which is expected to close by Q2 2021. Play’s 7.0k tower sites in Poland have a tenancy ratio of 1.1x, equating to 7.7k tenants with equipment on the towers, and the towers generate €120m of EBITDA.

Key Transaction Terms – Cellnex, Iliad and Play

Cellnex Revenue and EBITDA

Cellnex will invest €804m to acquire a 60% controlling stake in the company that will manage the tower sites. Whereas the remaining 40% will continue to be owned by Play (and its new owner Iliad). Cellnex will finance the 60% stake purchase with cash on-hand from its recently completed capital raise in July 2020. In July, Cellnex raised €4 billion of capital, allowing it to pursue €11 billion of new opportunities – and it has now found its first deal.

The structure of this transaction is similar to a transaction that Cellnex and Iliad previously did together in May 2019. Cellnex’s prior deal with Iliad was for sites formerly operated by Free (Iliad) in France.

Cellnex has signed an inflation-linked Master Service Agreement with Play, as the anchor tenant. The agreement has an initial term of 20 years, to be automatically extended for a subsequent 10-year period. The company will also use Play TowerCo to invest up to €1.3bn in rolling-out up to 5.0k new tower sites. These investments will be made through a Build-to-Suit (BTS) program, over the next 10 years.

Once both the initial acquisition and the roll-out of the new sites have been completed, EBITDA for Play TowerCo will increase from €120m of EBITDA to €220m of EBITDA. At the same time, Recurring Leveraged Free Cash Flow (RLFCF) will be €160m.

After the transaction is closed, Cellnex will have 73.0k tower sites in nine countries and its backlog of contracted sales will increase by €6bn to €53bn. The nine countries include Cellnex’s operations in Spain, Italy, the Netherlands, France, Switzerland, the United Kingdom, Ireland, Portugal, and now Poland.

Transaction Valuation – Cellnex, Iliad and Play

Cellnex is paying €804m to acquire a 60% stake in the 7.0k Play tower sites. This means the value for 100% of Play TowerCo is €1.3bn. After including the €1.3bn investment required for the Build-to-Suit (BTS) program of 5.0k new tower sites, the total Enterprise Value for the Play transaction equates to €2.6bn.

Key valuation metrics for the transaction are as follows:

  • Year 1 EBITDA of €120m, equates to a multiple of 11.2x EBITDA, under IFRS-16 standards
  • Run-Rate EBITDA of €220m, which includes the BTS program, equates to a multiple of 11.9x EBITDA under IFRS-16 standards
  • Recurring Leveraged Free Cash Flow of €160m, equates to a Free Cash Flow Yield of 6.0%
  • Enterprise Value per tower (including the Build-to-Suit program) equates to €219k per tower

Why Would Iliad Do This Partnership?

Iliad is benefitting by having Cellnex acquire Play TowerCo in a multitude of ways. Firstly, Cellnex is reducing the purchase price that Iliad is having to pay for Play. This is being achieved by having Cellnex carve-out 60% of the tower assets from the company.

Further, Iliad will also benefit from Cellnex’s subsequent investment into Play TowerCo. As further tower builds will strengthen the investment capacity of Play in areas such as:

  • Upcoming purchase of 5G spectrum at auction (including Poland’s 3.4 GHz to 3.8 GHz band auction in Q1 2021)
  • Need to densify sites given Play’s total site count of only 8.3k sites. This is well below the site count of peers, T-Mobile and Orange, who combined have 13.0k towers through NetWorkS! (see below)
  • Play’s planned entry into the fixed broadband market

Telecom Market in Poland

Telecom Market in Poland

Poland Tower Market Overview

Poland is one of the most important countries and economies in Eastern Europe, with 38 million people. Additionally, the GDP of Poland, in relative terms, has outperformed the European Union, as a whole, since 2007.

Overall, Poland has 22.0k towers underpinning its mobile network. Key carriers in Poland include Orange, Play (P4), Plus and T-Mobile. Additionally, Poland’s four carrier market is considered balanced from a market share standpoint, which makes the Polish market competitive for the carriers, and attractive to tower companies.

Tower Companies and Joint Venture Infrastructure Companies in Poland:

  • NetWorkS!: owned by T-Mobile and Orange, who share passive and active infrastructure in Poland through 13.0k towers in a 50% / 50% joint venture network sharing arrangement. Aside from the NetWorkS! joint venture, insignificant amounts of tower sharing exists in Poland despite the country’s considerable 120.7k square mile land mass.
  • Emitel: owned by Alinda Capital Partners, comprises 377 tower sites, which are primarily for broadcast purposes.

As a reference point, American Tower, another company we cover at Dgtl Infra, entered into Poland in June 2020. As of Q2 2020, American Tower had 19 towers in the country, with an agreement to acquire an additional 31 towers in Poland in the future.

Poland Market Context for Cellnex, Iliad and Play

Poland has more subscribers per tower than the majority of other countries in Europe. This indicates i) there is demand for more towers, which will need to be built, and ii) the extent of tower site decommissioning that has already taken place in the country.

Further opportunities exist for Poland’s tower companies from 5G, which will benefit additional tower colocation. Poland’s four carriers all plan to roll-out 5G services in the coming years. Additionally, the operating environment for towers in Poland is improving with an increasingly supportive government advocating for 5G roll-outs. Finally, there is a growing need for fixed wireless access (FWA), particularly in rural areas, which can be greatly enhanced through 5G.

Poland Opportunity for Cellnex

The purchase of Play TowerCo will give Cellnex a ~30% market share in Poland, a new market for the company. Further, Cellnex is already seeking additional opportunities to gain scale in the country through acquisition. For example, on October 1st, Reuters reported that Polish carrier Plus, through its Polkomtel infrastructure unit, had put its 8.0k towers up for. Reportedly, these towers could sell for between €1.0bn to €1.3bn. Therefore, Cellnex could announce accretive bolt-on tower transactions in the near future in Poland.

Adam Simmons covers Towers for Dgtl Infra, including American Tower (NYSE: AMT), Crown Castle (NYSE: CCI), SBA Communications (NASDAQ: SBAC), Cellnex Telecom (BME: CLNX), Vantage Towers (ETR: VTWR), IHS Holding (NYSE: IHS), and many more. Within Towers, Adam focuses on the sub-sectors of ground-based cell towers, rooftop sites, broadcast / radio towers, and 5G. Adam has over 7 years of experience in research and writing for Towers.


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