Cordiant Digital Infrastructure (LON: CORD), an externally managed closed-end investment company focused on digital infrastructure, today announced its interim results to September 30, 2021, and provided updates on its capital raising, acquisition of Ceské Radiokomunikace (CRA), investment pipeline, and its view on recent digital infrastructure M&A transactions.
Capital Raising – Cordiant Digital Infrastructure
During the nine months ended September 30, 2021, Cordiant Digital Infrastructure has raised gross proceeds of £595m from its initial public offering (IPO) and follow-on equity issuances. Specifically, these capital raises include:
- IPO: £370m gross proceeds in February 2021
- C Shares: £185m gross proceeds from the issuance in June 2021
- Subscription Shares: £40m through exercises during the nine months ended September 30, 2021
To-date, Cordiant has deployed 80%+ of its IPO proceeds into Ceské Radiokomunikace (CRA). Therefore, the firm’s remaining funds provide capital to complete investment opportunities currently in Cordiant Digital Infrastructure’s pipeline (see below).
Ceské Radiokomunikace (CRA) – Overview
In April 2021, Cordiant Digital Infrastructure acquired Ceské Radiokomunikace (CRA) for consideration of £305.9m ($425m USD). Since acquiring the business, Cordiant has increased the fair value of the investment by £15.3m, equivalent to a 5% mark-up, as of September 30, 2021. Furthermore, incorporating foreign exchange movements and other adjustments (incremental 1.2% uplift), Cordiant values the business at £324.8m, as of September 30, 2021.
Ceské Radiokomunikace (CRA) owns and operates assets in the Czech Republic which reside in multiple sub-sectors of digital infrastructure:
- Towers: 660 mobile and broadcast towers. Of this total, 643 towers are capable of hosting wireless carrier tenants. However, currently only 387 sites (~60% of total) are being used to host wireless carrier tenants
- Data Centers: six edge facilities, including the DC TOWER data center in Prague, Czech Republic
- Fiber: 2.3k miles (3.7k kilometers) of fiber-optic network. Of this total, 950 miles (1.5k kilometers) are owned, while 1.4k miles (2.2k kilometers) are leased
- Backhaul: 3.0k microwave connections, which support utilities via Internet of Things (IoT) remote meter-reading and network management
Customers and Contracts
Ceské Radiokomunikace (CRA) has ~560 corporate and ~210 wholesale customers. Generally, customer contracts have a duration of 6 to 8 years (7 years on average), with the majority of these contracts being inflation-linked.
For the year-ended March 31, 2021, CRA reported revenue of $108.0m (2,404 CZKm), which was flat year-over-year, and EBITDA (post-IFRS 16) of $57.8m (1,286 CZKm), a 2.2% decrease year-over-year. Therefore, the company’s EBITDA margin was 53.5%, a ~125 bps decline year-over-year.
Additionally, during the year-ended March 31, 2021, CRA invested $15.8m (352 CZKm) in capital expenditures. In turn, the company’s free cash flow (EBITDA, less CapEx) was $42.0m (935 CZKm) for the year.
Finally, Cordiant Digital Infrastructure notes that 1/3rd of CRA’s revenue is government-related.
Cordiant Digital Infrastructure is a value-add investor which is assessing opportunities to expand CRA’s business. Particularly, the firm’s strategies for CRA include data center expansion, serving major utilities with Internet of Things (IoT) offerings, bolt-on acquisitions in the sub-sectors of towers and fiber, and potential integrations of 5G and broadcast.
Investment Pipeline – Cordiant Digital Infrastructure
Cordiant Digital Infrastructure has a €2bn investment pipeline which includes four opportunities, of which two are in an ‘advanced stage’:
As of September 30, 2021, Cordiant Digital Infrastructure has £273.6m of cash to make further investments. Additionally, the firm has the ability to draw debt, as it is currently debt-free as of September 30, 2021.
Digital Infrastructure – Precedent M&A Transactions
Cordiant Digital Infrastructure highlights notable digital infrastructure precedent M&A transactions, which have taken place during 2021 in the sub-sectors of towers, data centers, and fiber. Specifically, these transactions include CyrusOne (KKR and GIP), CoreSite Realty (American Tower), Telxius Towers (American Tower), Open Fiber (Macquarie), and Green Mountain (Azrieli Group).
Shown in the chart below is the enterprise value of each transaction, versus its respective EV/EBITDA valuation multiple.
Generally, Cordiant notes that larger, single-sector deals command higher EV/EBITDA valuation multiples. Indeed, this is because these deals attract large corporate and financial buyers. Whereas Cordiant focuses on smaller enterprise value transactions which may result in lower EV/EBITDA valuation multiples.