Colony Capital, through its flagship private equity fund, Digital Colony Partners II, and specifically, portfolio company Edgepoint Infrastructure, today announced the signing of a 10-year towers sale and leaseback agreement with Indosat Ooredoo, Indonesia’s second largest wireless carrier. Specifically, Edgepoint Infrastructure is acquiring more than 4.2k towers for a purchase price of $750m. Indeed, this equates to a valuation of $179k per tower, on the 4.2k tower sites. Finally, the transaction is expected to close in Q2 2021.
Edgepoint Infrastructure – Digital Colony Portfolio Company
Today’s announcement marks Edgepoint Infrastructure’s first deal in its strategy to develop, acquire, and operate towers and distributed antenna systems (DAS) in the Southeast Asia region. Additionally, Indosat Ooredoo’s Indonesia towers are Digital Colony’s first brownfield (i.e., M&A) existing asset purchase in Asia.
Indonesia Towers Market by Owner
Notably, Indonesia is one of the largest tower markets in Southeast Asia, with a total of 100k towers spread across both independent tower companies and wireless carriers.
Beyond Indonesia, some of the largest tower markets in Southeast Asia include Vietnam (90k towers), Thailand (55k towers), Malaysia (35k towers), Myanmar (25k towers), and the Philippines (18k towers). Indeed, Edgepoint Infrastructure could pursue future tower deals in these markets as well.
Towers – Precedent M&A Transactions – Indonesia
Overall, Edgepoint Infrastructure’s valuation of $179k per tower for Indosat Ooredoo’s 4.2k towers sets a new record for towers precedent M&A transactions in Indonesia. Notably, Indosat Ooredoo references a “competitive tender process”, run by its financial advisor J.P. Morgan, which likely increased pricing tension for their assets.
Importantly, Indonesia’s tower market is characterized as having significant independent tower ownership of ~50% (see chart above). Specifically, these independent tower owners include Protelindo (Sarana Menara Nusantara), Tower Bersama, STP, and Centratama. Indeed, these independent tower companies have been active buyers of towers in Indonesia over the past years and likely were participants in the Indosat Ooredoo tower auction process as well.
In summary, elevated pricing may have been a consideration to dissuade Protelindo, Tower Bersama, STP, and Centratama from securing the Indosat Ooredoo transaction ahead of Digital Colony. Below we highlight three recent towers precedent M&A transactions in Indonesia as valuation benchmarks:
- October 2020: Telkomsel sold 6.1k towers to Mitratel for $700m, equating to $116k per tower
- February 2020: XL Axiata sold 1.7k towers to Protelindo and 1.1k towers to Centratama. In total, XL Axiata sold the towers for $296m, equating to $107k per tower
- October 2019: Indosat Ooredoo sold 2.1k towers to Mitratel and 1.0k towers to Protelindo. In total, Indosat Ooredoo sold the towers for $450m, equating to $145k per tower
Transaction Rationale – Indosat Ooredoo
Indosat Ooredoo’s rationale for monetizing its tower assets to Digital Colony’s Edgepoint Infrastructure may be two-fold. Firstly, the company could use proceeds from the $750m tower sale to reduce debt or issue a special dividend. Secondly, Indosat Ooredoo could be targeting a more strategic use of the proceeds.
Specifically, the company has announced an exclusive non-binding memorandum of understanding (MoU) to explore a combination with Hutchison 3 Indonesia (CK Hutchison), another wireless carrier. Notably, the MoU with CK Hutchison is valid until April 30, 2021. Therefore, proceeds from Indosat Ooredoo’s tower sale could fund any cash consideration paid to CK Hutchison.
Should the Indosat Ooredoo and Hutchison 3 Indonesia deal proceed, merger synergies could include rationalizing certain tower site leases. Indeed, the combined company may decommission towers in overlapping areas, which would result in savings to its site rental costs.