DigitalBridge Group (NYSE: DBRG) today announced that it has agreed to acquire 100% of the mobile telecommunications tower business of Telenet Group, a wireless carrier in Belgium which is 58.3%-owned by Liberty Global, in an all-cash transaction, at an enterprise value of €745m ($820m USD). Telenet’s tower business comprises a nationwide footprint of 3,322 sites in Belgium, including 2,158 owned sites (65% of total) and 1,164 third-party sites (35% of total).

Following completion of the transaction, DigitalBridge has renamed the company Belgium Tower Partners (BTP), which is the first independent tower company in Belgium.

Valuation and Transaction Structure – DigitalBridge Buys from Telenet

Valuation

In FY 2021, pro forma for Telenet’s anchor tenant fee and regulated site sharing fees received from other tenants, Telenet’s tower infrastructure business generated revenue of €61.2m ($67.4m USD), adjusted EBITDA of €55.1m ($60.6m USD), and adjusted EBITDAaL (EBITDA after Leases) of €29.7m ($32.7m USD). Therefore, DigitalBridge’s purchase of Telenet’s tower business implies a valuation, on an enterprise value basis, of 25.1x EBITDAaL.

Additionally, the DigitalBridge transaction’s enterprise value of €745m ($820m USD), values Telenet’s 3,322 sites at €224k ($247k) per tower. However, this calculation would be more relevant by excluding third-party sites from the purchase price and tower count. Without a purchase price allocation, simply using only Telenet’s owned sites in the denominator (and not altering the purchase price) would result in a valuation of €345k ($380k) per tower.

Transaction Structure

Initially, the Telenet transaction will be funded through a combination of debt and equity financing, of which DigitalBridge’s balance sheet will commit €470m ($517m USD). Subsequently, DigitalBridge plans to transfer its ownership of Telenet’s tower business to a fund of its investment management unit. Specifically, DigitalBridge states that this sell-on transaction will be “in support of the firm’s continued development of new investment strategies”.

Recall, in Q4 2021, DigitalBridge disclosed details on its three new investment management strategies in digital infrastructure called Credit, Core, and Ventures. Most relevant to the Telenet transaction is DigitalBridge’s Core strategy, which is led by Matt Evans, formerly of AMP Capital, and Peter Hopper, formerly of DH Capital. The strategy targets investing in long-duration, predictable-return assets – both characteristics of Telenet’s tower business.

Finally, the parties expect the transaction to close in Q2 2022.

Tower Business in Belgium – Telenet Group

Telenet’s tower business, which DigitalBridge is acquiring, comprises a nationwide footprint of 3,322 sites in Belgium. Decomposing this portfolio further:

  • Owned: 2,158 sites, of which nearly 38% or ~820 are ground-based towers. Therefore, this implies that the remaining ~62% or ~1,338 of Telenet’s owned passive infrastructure are rooftop sites
  • Third-Party: 1,164 sites

Overall, the tenancy ratio across Telenet’s entire portfolio in Belgium is 1.2x, while the portfolio’s ground-based towers, in isolation, have a 1.6x tenancy ratio. Telenet’s total tenancy ratio of 1.2x implies that ~4k tenants have equipment on the company’s towers and rooftop sites.

MLA and BTS Commitment

As part of the agreement, DigitalBridge will enter into a long-term master lease agreement (MLA) with Telenet, which includes an initial period of 15 years and two renewals of 10 years each – extending the total possible lease duration to 35 years.

Additionally, the agreement includes a build-to-suit (BTS) commitment to deploy a minimum of 475 additional new sites, with Telenet acting as a subcontractor to DigitalBridge’s new tower company. More precisely, Telenet will construct new towers and sell/transfer them on to DigitalBridge’s new tower company. In turn, Telenet will gain additional proceeds from DigitalBridge, over time.

Rationale

Telenet’s tower business and infrastructure assets possess stable and long-term contracted cash flows. However, it is worth noting that Telenet holds non-investment grade credit ratings from each of Moody’s (Ba3), S&P (BB-), and Fitch (BB-). As such, Telenet presents more counterparty risk for DigitalBridge than is typical in most tower sale-and-leaseback transactions – particularly if the assets are being transferred to DigitalBridge’s Core strategy.

In addition to Telenet’s existing tower portfolio, DigitalBridge will be able to grow the business further through success-based capital expenditures for Telenet, via its BTS commitment.

More broadly, DigitalBridge is creating the first independent tower company in Belgium through Telenet’s nationwide footprint. As such, the new company will be able to participate in 5G deployments in Belgium to meet growing coverage needs, with the drivers of this need being wireless penetration and data usage.

Pre-Existing Relationship

DigitalBridge and Telenet’s majority owner, Liberty Global, have previously partnered together on a transaction in Europe, namely AtlasEdge Data Centres. AtlasEdge is a European edge data center provider which is a joint venture between Liberty Global, DigitalBridge’s private equity fund, DigitalBridge Partners II (DBP II), as well as Digital Realty, as a minority equity investor.

Presently, AtlasEdge’s data center portfolio comprises 100+ carrier-neutral colocation facilities across 11 European countries.

Transaction Advisors

DigitalBridge’s legal advisors were Latham & Watkins and Stibbe.

Telenet’s financial advisor was Goldman Sachs. Additionally, Telenet’s legal advisor was Allen & Overy.

DigitalBridge – Towers in Europe

DigitalBridge manages a $45bn portfolio of digital infrastructure assets across the sub-sectors of cell towers, data centers, fiber, and small cells. Presently, DigitalBridge holds two digital infrastructure portfolio companies through its balance sheet, with the vast majority of its companies and assets held through its investment management business.

Within the digital infrastructure sub-sector of cell towers and geographically, in Europe, DigitalBridge has equity ownership in three existing companies. Notably, none of DigitalBridge’s European tower companies have overlapping exposure to Belgium with Telenet.

  • Vantage Towers: owns 45.7k macro sites in 8 European markets, including Germany, Spain, Greece, the Czech Republic, Portugal, Romania, Hungary, and Ireland
  • Digita Oy: operates 300 active sites and 2.4k total sites, including those with management rights, across Finland
  • ÍslandsTurnar: operates 367 ground-based towers and rooftop sites across Iceland

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