IHS Holding Limited, the parent company of IHS Towers, an emerging markets tower company focused on Africa and Latin America, released its Form F-1 for the initial public offering (IPO) of its shares on the New York Stock Exchange (NYSE), under the symbol IHS.
Presently, the company has not provided any price range for its shares and has only specified a placeholder amount of $100m for its target capital raise. However, given the company’s size, Dgtl Infra estimates that IHS Holding could raise $1.0bn+ through a combination of primary and secondary share sales.
Below we provide a breakdown of IHS Holding’s initial public offering (IPO) process, towers business, key business drivers, and macroeconomic fundamentals for its growth.
Initial Public Offering (IPO) Process – IHS Holding
Based on recent tower company M&A transactions in Africa and Latin America, as well as trading multiples for publicly-traded peers, such as Helios Towers, we deem a 12.5x EV/EBITDA multiple for IHS Holding as conservative. Annualizing IHS Holding’s adjusted EBITDA for the six months ended June 30, 2021 (see below), equates to a $980m EBITDA run-rate. Therefore, an initial public offering (IPO) of 30.2k towers by IHS Holding, could result in an enterprise value of $12.3bn for the company.
For the year-ended December 31, 2020, IHS Holding reported revenue of $1.4bn, a 14% increase year-over-year, and adjusted EBITDA of $819m, a 22% increase year-over-year. Therefore, the company’s EBITDA margin was 58.4% in 2020, a 4.1% increase year-over-year.
For the six months ended June 30, 2021, IHS Holding reported revenue of $764m, a 15% increase year-over-year, and adjusted EBITDA of $490m, a 31% increase year-over-year. Therefore, the company’s EBITDA margin was 64.2% in H1 2021, a 7.7% increase year-over-year.
Use of Proceeds
IHS Holding notes that the main purposes for its initial public offering (IPO) are to increase the tower company’s financial flexibility and to create a public market for its ordinary shares. Further, IHS intends to use the net proceeds from this IPO to fund its organic and inorganic (i.e., M&A) growth.
At the same time, IHS Holding’s largest shareholders including MTN Group (29% equity interest), and Wendel Group (21% equity interest) will gain a liquid market to sell their shares into, following the tower company’s IPO.
IHS Holding will not receive any proceeds from the secondary sale of ordinary shares by its selling shareholders. Specifically, these selling shareholders could include MTN Group, Wendel Group, Emerging Capital Partners (ECP), Korea Investment Corporation, GIC, International Finance Corporation (IFC), African Infrastructure Investment Managers (AIIM), FMO (Netherlands development bank), Goldman Sachs, and Investec.
Below are the underwriters leading the initial public offering (IPO) process of tower company IHS Holding:
- Joint Global Coordinators: Goldman Sachs, J.P. Morgan, and Citigroup
- Joint Book-Running Managers: RBC Capital Markets, Barclays, Absa Bank
- Co-managers: Cowen, Investec, RenCap, RMB, Academy Securities, Loop Capital Markets, Ramirez & Co, Siebert Williams Shank, Tigress Financial Partners
IHS Holding – Business Overview
IHS Holding is one of the largest independent owners, operators, and developers of shared telecommunications infrastructure globally. The company provides its customers, which are mainly wireless carriers, with digital infrastructure that facilitates mobile communications coverage and connectivity. Specifically, this infrastructure covers 596 million people in emerging markets, across three regions and nine countries. In turn, IHS Holding’s customers provide wireless voice, data, and fiber access services to their end users and subscribers.
Overall, IHS Holding operates 30.2k towers across five countries in Africa, three countries in Latin America, and one country in the Middle East. Of this total, the company has a portfolio of 28.3k owned towers and 1.9k towers that it manages with a license to lease (MLL).
The company’s owned and operated tower portfolio supports 45.5k tenants, implying a tenancy ratio of 1.51x. IHS Holding has grown this tower portfolio through a combination of constructing new sites, as well as by acquiring tower portfolios from wireless carriers and independent tower companies.
Geographically, IHS Holding’s footprint covers Nigeria, Côte d’Ivoire, Cameroon, Rwanda, Zambia, Brazil, Peru, Colombia, and Kuwait.
In Nigeria, which is the largest telecommunications market in Africa by subscribers, IHS Holding has ~65% market share of independently owned or operated sites. More broadly, the company owns or operates ~47% of all towers in its combined African markets. Overall, this positioning makes IHS Holding the largest tower operator in Africa by tower count.
Largest Independent Multinational Tower Companies Globally
Finally, IHS Holding has historically focused its business predominantly on towers. However, the company has begun broadening its scope to include additional sub-sectors of digital infrastructure, namely fiber, small cells, and distributed antenna systems (DAS).
Sources of Revenue
IHS Holding’s business grows when wireless carriers densify their networks, improve network coverage & capacity, and upgrade their networks with new technologies (i.e., 4G and 5G). Particularly, wireless carriers implement these initiatives either on IHS Holding’s existing towers or by sharing new sites that IHS delivers to the market.
The company increases its revenue per tower through colocation and lease amendments as wireless carriers upgrade their networks from 2G and 3G to 4G, and ultimately 5G.
IHS Holding provides new customers with opportunities to lease space on existing towers alongside other tenants, which is known as colocation.
IHS Holding enables existing tenants to install incremental equipment on a tower or request additional services, known as lease amendments. For example, tenants can take more space on a tower, add equipment for new technologies (i.e., 3G, 4G/LTE, or 5G), and install additional microwave radio links.
IHS Holding constructs new towers to a customer’s specifications, known as new build-to-suit (BTS) sites. Typically, the company constructs build-to-suit (BTS) sites after obtaining a long-term lease commitment with an initial tenant. Moreover, IHS prefers to have conviction around the potential for colocation (i.e., additional tenants) for new towers that it constructs.
Distributed Antenna Systems (DAS)
IHS Holding leases space to its customers within large venues, such as shopping malls, stadiums, and airports. The company refers to this business line as in-building solutions (IBS), but it is more commonly known as distributed antenna systems (DAS).
IHS Holding’s key customers represent 92% of its tenants. Specifically, these customers are MTN Nigeria, MTN Côte d’Ivoire, MTN Cameroon, MTN Zambia, MTN Rwanda, Orange Cameroon, Orange Côte d’Ivoire, 9mobile, Airtel Nigeria, Airtel Zambia, Airtel Rwanda, Claro Brazil (América Móvil), TIM Brasil (Telecom Italia), Telefônica Brasil (Vivo), Tigo Colombia (Millicom), Claro Colombia (América Móvil), and Zain Kuwait.
Notably, MTN Nigeria and Airtel Nigeria accounted for 55% and 10%, respectively, of IHS Holding’s revenue for the six months ended June 30, 2021.
Leases and Master Lease Agreements (MLAs)
IHS Holding typically enters into long-term master lease agreements (MLAs) of 5 to 15 years in duration with its customers. Specifically, as of June 30, 2021, the average remaining length of the company’s MLAs with its key customers was 6.3 years.
|Country||Duration of MLA||Remaining Term|
|Nigeria||5 to 15 years||7.1 years|
|Côte d’Ivoire||10 to 15 years||4.2 years|
|Cameroon||10 to 15 years||4.2 years|
|Zambia||10 years||3.4 years|
|Rwanda||10 years||4.7 years|
|Kuwait||10 years||8.6 years|
|Brazil, Peru, Colombia||5 to 20 years||6.9 years|
Overall, IHS’ key customers have aggregate contracted tenant lease revenue of $9.8bn, with an average remaining tenant lease term of 7.4 years (includes all leases).
Revenue Escalators, Cost Inflation
IHS Holding’s master lease agreements (MLAs) typically include annual inflation-linked revenue escalators, tied to the consumer price index (CPI). Also, some of the company’s MLAs incorporate power indexation pass-through provisions to mitigate against increases in diesel prices.
For the six months ended June 30, 2021, 63% of IHS Holding’s revenues were linked to the U.S. dollar or Euro. Notably, the company’s U.S. dollar-linked revenues are denominated in U.S. dollars through MLAs, but paid to the company in local currency.
IHS Holding’s tower portfolio comprises primarily ground-based towers constructed on land that is leased under long-term ground leases. Presently, ~92% of the sites in IHS’ portfolio are operated under ground leases on land that the company does not own. The company’s ground lease costs extend for a fixed duration, typically being a 10- to 15-year term.
Notably, the average remaining life of IHS Holding’s ground leases is 7.9 years. Additionally, over the next 18 months, ~19% of the company’s ground leases are due for renewal.
Tower Competitors to IHS Holding – IPO Benchmarks
IHS Holding is the largest independent tower company in Africa, with 24.3k towers. However, the company faces competition from sizeable independent tower companies in both Africa and Latin America, including:
- American Tower: 21.0k towers overall in Burkina Faso, Ghana, Kenya, Niger, Nigeria, South Africa, and Uganda
- Helios Towers: 8.6k towers (14.7k towers pro forma for pending acquisitions) in 10 markets overall (pro forma)
- SBA Communications: ~1.0k towers in South Africa and 1.4k towers in Tanzania
- American Tower: 23.2k towers overall in Brazil
- SBA Communications: 10.2k towers overall in Brazil
IHS Holding – Business Drivers
IHS Holding, following its IPO, will be able to capitalize on the significant drivers of the towers business:
Mobile Telecommunications Growth
In IHS Holding’s emerging markets operating regions, wireless services and networks are the primary method of telecommunications, due to a lack of fixed line infrastructure. Therefore, the importance of towers for telecommunications is exacerbated where IHS operates, as compared to developed markets.
IHS Holding’s operating markets have large, growing populations and low mobile penetration, particularly, relating to 4G and 5G SIM penetration. Specifically, IHS’ nine markets of operation cover 604 million SIMs, which the company estimates will increase to 684 million in 2025. In addition to potential subscriber growth, IHS also anticipates the subscriber mix will shift from mainly 2G and 3G subscribers to more data-intensive 3G, 4G, and ultimately 5G subscribers.
Mobile SIM Growth for IHS Holding’s Operating Markets
|Country||2020 SIMs (m)||2025 SIMs (m)||’20 to ’25 CAGR|
In Africa, the market is characterized by low mobile penetration, and a high number of subscribers per tower. Additionally, African markets have an increasing need for 3G and 4G coverage and capacity, with 55% 3G SIM penetration and only 9% 4G SIM penetration.
IHS Holding estimates that its African markets will require 22.0k+ new towers and 30.0k+ new wireless carrier tenancies between 2020 and 2025.
In Latin America, IHS Holding estimates that its markets will require 19.0k+ new towers and 42.0k+ new wireless carrier tenancies between 2020 and 2025.
IHS Holding is able to secure attractive unit economics through the colocation of additional tenants on its tower infrastructure. In turn, the company can improve its margins and its return on invested capital (ROIC) because these additions require limited incremental capital expenditure and operating expenses. At the same time, the company typically does not provide additional tenant discounts for the incremental tenants (e.g., second tenant).
Presently, IHS Holding has a tenancy ratio of 1.51x across its portfolio. Therefore, the company’s tower sites have the capacity to add additional tenants before reaching a stabilized tenancy ratio. For example, the company’s tower vintages up to 2010 had a tenancy ratio of 2.21x.
Tenancy Ratio by Tower Vintage
|Period||# of Sites||Tenancy Ratio (Jun-21)|
|Up to 2010||620||2.21x|
|2011 to 2012||865||1.87x|
|2013 to 2014||12,974||1.65x|
|2015 to 2016||9,878||1.44x|
|2017 to 2019||3,480||1.26x|
Finally, operating leverage also derives from the company’s inorganic tower acquisition strategy. As IHS Holding acquires tower portfolios, the company can selectively decommission sites, moving tenants from one tower to another, to reduce costs. Ultimately, this strategy enhances the scaled company’s operating margins.
Barriers to Entry
IHS Holding notes a number of barriers to entry in the tower industry, which are enhanced by its market position:
- Scale: IHS Holding has a first mover advantage in the majority of the markets in which it operates. Indeed, the company has often completed the first tower sale-and-leaseback transactions with wireless carriers in its markets
- Capital Intensity: tower portfolios inherently require significant capital investment to build. For example, in Africa, towers cost $80k to $100k to construct, while in Latin America, towers cost $40k to $60k to build
- Zoning: in certain instances, zoning rules can restrict towers from being built within a certain radius of each other
- High Switching Costs: for wireless carriers, there are high costs and potential service disruptions from switching tower infrastructure providers. Therefore, IHS Holding is in a strong position to renegotiate and extend its contracts with wireless carriers – keeping them away from competition
- Build-to-Suit (BTS): IHS Holding has a rapid time to market for constructing new sites, as well as a low cost-to-build
IHS Holding operates as an outsourced tower management provider. Indeed, this structure is mutually beneficial to wireless carriers and tower infrastructure providers. Particularly, wireless carriers benefit from reduced operating and capital expenditures.
At the same time, wireless carriers that sell their tower assets to companies like IHS Holding generate proceeds, enabling them to re-invest in their business initiatives. For example, tower infrastructure providers can lower capital expenditures for wireless carriers by deploying towers for them in a more cost-effective manner.
Tower companies have stable business models anchored by fixed revenue escalators and protected by long-term contracts. Importantly, the average lease term entered into by IHS Holding for all its leases is 7.4 years, thus being long-term.
Macroeconomic Fundamentals – Tower Business
Several key macroeconomic trends influence wireless telecommunications growth, and thus the long-term demand for tower infrastructure.
Presently, there are 596 million people in IHS Holding’s nine operating markets, which the company expects to reach 644 million by 2025. To this end, the population compound annual growth rate (CAGR) in IHS’ markets averaged 2.3% from 2015 to 2020. Furthermore, the population is forecasted to grow at a 2.1% CAGR from 2020 to 2025. Indeed, this exceeds the global average for population CAGR of 1.0%, per the World Bank.
In IHS Holding’s operating markets, ~18% of the total population is between the ages of 15 and 24. Moreover, the median age across the company’s nine markets, is 21 years old, well-below the global median age of 31.
With younger populations being higher demand users, IHS Holding’s markets will experience increasing voice and data usage. As a result of increases in usage and data services, demand for more tower infrastructure will increase.
Countries with a higher degree of urbanization typically have higher mobile penetration rates, stronger average revenue per user (ARPU) metrics, and swifter deployments of wireless technologies and networks (i.e., 4G and 5G). Overall, this implies that urbanization drives demand for additional telecommunications infrastructure.
Finally, across IHS Holding’s markets, the company has urban populations of ~50% of the total population. Furthermore, the majority of the company’s markets are experiencing increasing urbanization levels. Consequently, these drivers will support demand for additional tower infrastructure.