Cordiant Capital, a private equity firm focused on infrastructure investing, today announced its intention to raise £300m through the initial public offering (IPO) of a newly created fund called Cordiant Digital Infrastructure.
Cordiant Digital Infrastructure is launching its initial public offering (IPO) on the London Stock Exchange, after releasing its Intention to Float. Specifically, the new vehicle will invest in what Cordiant deems the “plumbing of the internet”, which includes towers, data centers, and fiber in the UK, Europe, and North America. Indeed, Cordiant Digital Infrastructure is targeting a capital raise of £300m, through the issuance of 300 million shares at a price of 100 pence per share.
Digital Infrastructure – Attractive Fundamentals
Digital infrastructure is benefitting from the surging growth in data consumption and traffic. Indeed, one growth driver includes the adoption of 5G technology. Overall, this growth in data consumption and traffic is set to provide an economic tailwind which Cordiant estimates will last for a decade or more.
Consequently, this data traffic growth will require more digital infrastructure to carry it. The most efficient way for this growth to be funded is for the users, including telecommunications operators, corporations, cloud computing companies, and governments, to lease space on shared digital platforms, from providers such as Cordiant Digital Infrastructure.
Importantly, digital infrastructure assets exhibit a number of attractive investment features, including:
- Recurring long-term contracts (often with built-in rental escalators) with predictable cashflows
- Limited obsolescence risk
- Location-based barriers to entry
Investment Profile and Strategy – Cordiant Digital Infrastructure
Cordiant Digital Infrastructure is targeting total returns on Net Asset Value (NAV) of at least 9% per year, following its initial public offering (IPO). Additionally, Cordiant has indicated that the company, once public, will offer an initial dividend yield of 1%, rising to 2% to 3% in Year 2, and further rising to at least 4% by Year 5. Therefore, on a run-rate basis, Cordiant Digital Infrastructure will be targeting total returns to investors of 13%+ per year.
Cordiant will principally invest capital in operating digital infrastructure assets. Specifically, the Cordiant Digital Infrastructure fund’s focus will be on towers, data centers, and fiber in the UK, European Economic Area (EEA), United States, and Canada. Furthermore, Cordiant will focus its efforts on the digital infrastructure sub-sectors of:
- Towers: broadcast towers, rooftops, small cells, and distributed antenna systems (DAS)
- Data Centers: edge, colocation, interconnection, carrier hotels, and hyperscale
- Fiber: municipal, metro, data center connectivity and long-haul regional, international, and subsea cables
Cordiant focuses on the middle-market, where platforms can be acquired at attractive entry prices. Additionally, the size of the platform can be grown through capital expenditure and bolt-on acquisitions. Specifically, Cordiant has identified and is evaluating, a pipeline of ~€1.5bn of investment opportunities. Indeed, these potential deals include advanced opportunities in U.S. data centers, Scandinavian fiber, and European towers.
Cordiant Digital Infrastructure highlights that the “REIT-ization” of neutral host towers, data centers, and fiber was pioneered in the United States. However, this concept is not yet as well-developed a trend in Europe.
Cordiant Digital Infrastructure will acquire or construct operating, cash flow generating digital infrastructure assets. The Cordiant digital infrastructure fund has the flexibility to acquire these assets either individually or through entities owning portfolios of such assets. Post-acquisition, Cordiant will generate investment returns through five primary ways:
- Contracted rental escalators
- Increasing the tenant base which uses the digital infrastructure assets
- Adding additional capacity to the digital infrastructure assets
- Driving operational improvements
- Achieving operational synergies with other digital infrastructure assets in Cordiant’s portfolio
Additionally, Cordiant Digital Infrastructure will target diversification of its capital, across its investment portfolio by:
- Investing in three different sectors of digital infrastructure being: towers, data centers, and fiber
- Ensuring the digital infrastructure assets, which it owns, are leased to a diverse set of counterparties
- Achieving a geographic spread of digital infrastructure investments in the UK, Europe, and North America
Cordiant Digital Infrastructure will invest, principally through equity, and structure these purchases as control investments, often with 100% ownership. Additionally, Cordiant may enter into joint venture arrangements alongside one or more co-investors.
Platform Investment Strategy
Cordiant Digital Infrastructure uses a platform investment strategy, which will enable it to achieve economies of scale, operating efficiency, asset quality control, and strategic clarity in each of its areas of operation. For example, a data center platform that Cordiant invests in could encompass 12 data centers. In turn, this provides the portfolio with both diversification and the benefits of centralized management of critical functions. These functions include technical support, maintenance, and sales.
Investment Drivers of Growth and Value – Cordiant Digital Infrastructure
Cordiant Digital Infrastructure emphasizes five key areas where it foresees growth and value to be driven for investors in its initial public offering (IPO). Specifically, these investment drivers include organic growth, growth capital expenditures, bolt-on acquisitions, multiple expansion, and network neutrality.
Most long-term contracts in the digital infrastructure sector benefit from annual price escalators. In addition, most clients at existing facilities purchase additional capacity each year to accommodate growth. For example, a carrier might add more 4G antennas or 5G antennas to meet additional coverage or capacity requirements.
Historically, carriers have taken time, to decommission antennas supporting older generation technologies (for example, 2G, 3G, and 4G). Indeed, these antennas continue to support services and handsets reliant on older technology standards. Moreover, in many instances the carrier is committed to long-term lease contracts with the company operating the towers.
In the tower market, for example, capturing this demand for additional capacity, whilst also deploying asset management initiatives specific to the asset, can contribute to above-market price growth.
Growth Capital Expenditures
Growth capital expenditures typically come in two distinct forms. Firstly, expanding existing facilities are a common form of growth capital expenditures. For example, these include adding square footage to a data center, and extending a fiber network. Secondly, building new, complementary facilities is another form of growth capital expenditures. For example, these include adding new towers to an existing network, and building a data center in a new city to extend an edge strategy.
Growth capital expenditures are typically driven by having secured an anchor tenant. These facilities are added at construction cost and over time, benefit from the value gap between construction cost and “market” EV/EBITDA valuation multiples.
A well-organized acquisition program can provide additional impetus to both achieving scale and margin growth. Specifically, this is the case if the acquisition program focuses on smaller or less mature asset platforms that can be “bolted on” at attractive acquisition prices. In addition, developer financing programs can be used to stimulate third-party construction activities, resulting in future acquisition opportunities.
Smaller digital infrastructure companies (i.e., those with enterprise values of <€500m) frequently command lower valuation multiples than larger groups. Therefore, as these smaller investment opportunities grow in size, this discount will narrow. Indeed, this growth can occur organically, though capital expenditures at construction cost and through bolt-on acquisitions. Once these investments have grown, they will be of greater interest to strategic buyers and larger infrastructure funds. In turn, the valuation multiple of the digital infrastructure company expands.
Network Neutrality (Neutral Host)
Growing data traffic patterns indicate the need for network neutral digital infrastructure will remain robust. This is particularly true with regards to the impending, costly need for carriers to invest in 5G spectrum and 5G networks.
Overall, these network neutral investments apply equally in urban centers, as well as suburban and rural areas. Whereas, to-date, the majority of capital investment has been heavily weighted towards investing in urban telecoms networks. However, changing working patterns as a result of the COVID-19 pandemic, are altering this dynamic.
Cordiant Digital Infrastructure will ensure that its investments offer neutral host solutions, when appropriate. However, this is not always possible, in the case of leasing a data center campus to cloud service providers. This is because cloud service providers, serve hundreds or thousands of customers from the same facility.
Investment Team – Cordiant Digital Infrastructure
Members of Cordiant’s Digital Infrastructure investment team have, on average, over 20 years of experience each in the digital infrastructure, communications technology, and Internet sectors. Specifically, the team has experience with over $80bn of relevant buy- and sell-side transactions in these sectors, over the past 25 years. Overall, the key individuals responsible for executing Cordiant Capital’s Digital Infrastructure investment strategy include:
Steven Marshall – Chairman of Digital Infrastructure
Steven Marshall was formerly President of American Tower’s U.S. Tower Division, helping to build the company into a $100bn tower REIT. Marshall previously served as CEO of National Grid Wireless. In his capacity at National Grid Wireless, he led their wireless tower infrastructure business in the U.S. and UK. Indeed, National Grid Wireless’ UK assets were ultimately sold to Arqiva.
Benn Mikula – Managing Partner, Co-CEO and Head of Investments
Benn Mikula has 30 years of experience in digital and related areas as an equities analyst, investment banker, board member and investor. Mikula was Managing Director and Head of European Technology Investment Banking at J.P. Morgan. During his tenure at J.P. Morgan, he advised major European Digital Infrastructure and telecoms equipment providers (i.e., Nokia, Ericsson, and Alcatel-Lucent). Previously, Mikula was a top-ranked analyst in technology and telecommunications technology whilst working at RBC Capital Markets.
David Kippen – Managing Director
David Kippen brings a 25+ year background in M&A/corporate finance and private investing in the Telecom Media Technology (TMT) sectors, as well as energy and infrastructure sectors. Kippen has worked on over 40 M&A transactions valued at over $30bn during this time. In addition, Kippen has worked on numerous private and public debt and equity financings in the TMT/Digital sectors.
Hagai Shilo – Managing Director
Hagai Shilo delivers 20 years of experience in private equity investing and exits, M&A and corporate finance. As a banker at J.P. Morgan and BNP Paribas, Shilo has advised on ~$2bn of M&A and raised financing of ~$7.5bn. In addition, while working for two multi-billion family offices, Shilo executed, as principal, the IPO of three portfolio companies on the LSE’s AIM market, raising an aggregate ~$500m.
Jean-François Sauvé – Managing Partner and Co-CEO
Jean-François Sauvé has over 25 years of experience in the financial industry. Sauvé was formerly the President of Pictet Canada, where he was responsible for the North American operations of Pictet & Cie, Switzerland’s foremost private bank. Previously, Sauvé was part of McLeod Young Weir Limited (re-branded Scotia Capital Markets), where he became a Director of the Corporate and Government Finance Department.
Stephen Foss – Managing Director (Structuring and Syndication)
Stephen Foss brings over 30 years of experience in capital markets and investing, most notably at RBC Capital Markets, where he was a Managing Director. He was responsible for the International Equities business for Europe and Australasia. Subsequently, Foss led a senior client coverage effort for RBC’s investment banking group with a particular focus on sovereign wealth funds.
Transaction Advisors and Next Steps – Cordiant Digital Infrastructure
Investec Bank is acting as Sole Financial Adviser, Global Coordinator and Sole Broker to the launch of Cordiant Digital Infrastructure.
Cordiant Digital Infrastructure intends to file its Prospectus for the initial public offering (IPO) on January 29, 2021. Subsequently, investors will have until February 12, 2021 to indicate their interest in the initial public offering (IPO). Finally, the initial public offering (IPO) allocations will be made on February 16, 2021.
Cordiant Capital – Overview
Cordiant Capital is the investment manager for the Cordiant Digital Infrastructure fund. Overall, Cordiant Capital invests in global infrastructure and real assets. The firm runs infrastructure private equity and infrastructure private credit strategies through limited partnership (LP) funds and managed accounts. Specifically, Cordiant’s institutional client base consists of global insurance companies, pension plans and family offices.
Cordiant Capital was founded in 1999 and has offices in London, Luxembourg, Montreal, and São Paulo. As of the end of 2020, Cordiant managed funds with committed capital of ~$2bn. Overall, Cordiant Capital has a team of 40 professionals focused on its investment strategies.