Uniti Group Limited (ASX: UWL), a wholesale fiber broadband provider in Australia, today announced that it has entered into exclusive discussions to be acquired by HRL Morrison & Co., a New Zealand-headquartered infrastructure and private equity investment firm, based on a non-binding indicative proposal, at a price of A$4.50 in cash per share, on a fully-diluted basis, which pegs Uniti at an equity value of A$3.1bn ($2.2bn USD).
At Morrison & Co’s offer price, Uniti Group is being valued on an enterprise value basis, at ~22.5x EBITDA for the year-ending June 30, 2022 (FY22) and ~19.5x EBITDA for the year-ending June 30, 2023 (FY23).
Morrison & Co’s indicative proposal is subject to a number of conditions, including completion of confirmatory due diligence, unanimous recommendation of the transaction from Uniti Group’s board of directors, and entry into a mutually acceptable scheme implementation agreement, amongst other conditions.
Below, Dgtl Infra provides an overview of Uniti Group’s largest business segment, which is known as Wholesale, Enterprise & Infrastructure (WEI).
Uniti Group – Wholesale, Enterprise & Infrastructure (WEI) Segment
Uniti Group owns, constructs, and operates open access wholesale fiber-optic networks to residential homes in Australia. Through this fiber-to-the-premises (FTTP) network, the company provides broadband and voice services primarily to new housing developments for single dwelling units (SDUs) and multiple dwelling units (MDUs).
Uniti Group’s Wholesale, Enterprise & Infrastructure (WEI) segment generates revenue from two distinct sources, namely network (recurring), which comprises ~90% of the total, and construction, which accounts for the remaining ~10% of the total.
Network
Uniti Group offers the use of its fiber network, via wholesale access agreements, to internet service providers (ISPs) and carriers. In turn, these ISPs and carriers re-sell this network access by offering broadband services to their own end users. For example, Telstra is an ISP – also known in Australia as a retail service provider (RSP) – that offers broadband services using Uniti’s network.
Overall, Uniti Group’s network revenue is recurring and is recognized as services are activated on the network by ISPs/RSPs.
Construction
Uniti Group’s construction revenue is typically non-recurring and based on discrete projects with property developers. Developers will fund a contribution for construction and installation of Uniti’s fiber network. While one-off connection fees are paid by occupiers.
Fiber-to-the-Premises (FTTP) Network – Uniti Group
Active and Connected Premises – as of December 31, 2021
Uniti Group has 142.6k active premises, which are residences that have broadband service and pay a recurring fee. Additionally, the company has 227.1k connected premises, which are residences that have fiber connections but no broadband service. Indeed, this implies that Uniti Group’s activation rate (i.e., active as a % of connected) is 63%.
Secured Premises – as of December 31, 2021
Uniti Group has 552.8k total secured premises, of which 260.6k were ready to connect (with fiber) and 292.2k were contracted / in construction. Including Uniti Group’s acquisition of the Telstra Velocity network assets, the company’s total secured premises stands at ~618k.
Of Uniti Group’s 292.2k contracted / in construction premises, ~163k (56%) are expected to be delivered over the next 5 years, while the remaining ~129k premises are anticipated to be delivered thereafter. Additionally, the contracted / in construction premises can be classified as 234k single dwelling units (SDUs) and 58k multiple dwelling units (MDUs).
Growth Drivers and Competition – Uniti Group
Growth Drivers
Uniti Group’s focus is on deploying fiber to new housing developments. Therefore, the company’s prospects are significantly influenced by Australia’s housing market and new home construction. Also, the company benefits from more ISPs/RSPs, utilizing its fiber network on a wholesale basis.
Competition
Uniti Group’s key competitor is the NBN (National Broadband Network). The NBN is an Australian government-owned enterprise which is creating a national open access wholesale broadband network. Particularly, Uniti Group provides an alternative fiber network to the NBN for connecting SDUs and MDUs across Australia.
Transaction Advisors
Uniti Group’s financial advisor is Bank of America. Additionally, Uniti Group’s legal advisor is Clayton Utz. Finally, Morrison & Co’s financial advisor is Record Point.
Morrison & Co – Digital Infrastructure
Morrison & Co has significant investment and operating experience in digital infrastructure. Specifically, the firm manages investments in businesses including Infratil Limited, Vodafone New Zealand, Fore Freedom, and CDC Data Centres.
Also, in 2021, Morrison & Co, alongside the Future Fund, Commonwealth Superannuation Corporation (CSC), and Sunsuper, acquired a 49% interest in Telstra’s towers business, which is now called Amplitel, at a valuation of A$5.9bn.
