TPG Telecom Limited (ASX: TPG), the third largest wireless carrier (operating as Vodafone Australia) and fixed broadband provider in Australia, today announced that it has agreed to sell 100% of its passive mobile tower and rooftop infrastructure, comprising 1,237 existing sites, to OMERS Infrastructure Management for an enterprise value of A$950m ($670m USD). Accordingly, TPG Telecom will retain ownership of all active infrastructure, being its radio access network (RAN) equipment.
In FY 2021, pro forma for TPG Telecom’s long-term contract, the tower assets generated EBITDA of A$29.6m ($20.9m USD). Therefore, OMERS Infrastructure’s purchase of TPG Telecom’s tower assets implies a valuation, on an enterprise value basis, of 32.1x EBITDA. Additionally, the OMERS Infrastructure transaction’s enterprise value of A$950m ($670m USD), values TPG Telecom’s 1,237 sites at A$768k ($542k USD) per tower.
Finally, the parties expect the transaction to close in Q3 2022.
Tower Assets – TPG Telecom
TPG Telecom’s owned tower assets comprise 1,237 existing sites, primarily in key metropolitan locations across Australia. Of this total portfolio, 428 (35%) are ground-based towers and 809 (65%) are rooftop sites.
Notably, TPG Telecom’s 1,237 existing sites represent only ~21% of its total mobile network footprint, as the remainder of the sites are already owned and operated by other tower companies. Still, TPG Telecom is selling 100% of its owned tower assets, which differs from comparable transactions of its wireless carrier peers, Telstra and Optus (Singtel), who only sold partial stakes in their tower businesses of 49% and 70%, respectively.
Post-transaction, OMERS Infrastructure will transition the business to be a neutral host, supporting the tower infrastructure needs of the broader Australian telecommunications sector. Indeed, this is a similar strategy to that of Axicom, an independent tower company in Australia, which was recently acquired by Australia Tower Network (ATN).
Master Services Agreement (MSA)
As part of the transaction, TPG has entered into a master services agreement (MSA) with a 20-year term, which allows for its continued use of the tower assets. Also, TPG Telecom has options to extend the contract.
TPG Telecom has committed to a build-to-suit (BTS) development program for an additional 252 sites, to further expand its network “over the coming years”.
Multi-Operator Core Network (MOCN)
TPG Telecom’s transaction with OMERS Infrastructure builds on its pending multi-operator core network (MOCN) agreement to enable regional network sharing with Telstra. To this end, TPG Telecom’s portfolio includes 120 sites in non-metropolitan locations where the company intends to decommission its active equipment, conditional on regulatory approval of the MOCN agreement.
Proceeds and Gain on Sale
TPG Telecom anticipates the transaction will deliver net cash proceeds of ~A$890m ($628m USD). Further, the company estimates that it will recognize an accounting after-tax gain on sale from the transaction of ~A$350m to A$400m.
Additionally, TPG Telecom intends to use the proceeds from the transaction to repay its existing bank debt. Strategically, for TPG Telecom, the transaction represents attractive long-term financing, which will reduce the company’s total financial leverage and deliver lower borrowing costs.
Transaction Advisors – OMERS Infrastructure, TPG Telecom
OMERS Infrastructure’s financial advisor was RBC Capital Markets. Additionally, OMERS Infrastructure’s legal advisor was Baker McKenzie.
TPG Telecom’s financial advisor was Bank of America.
OMERS Infrastructure – Overview
OMERS Infrastructure is the infrastructure investment manager of OMERS, the defined benefit pension plan for municipal employees in the Province of Ontario, Canada. Presently, OMERS Infrastructure has ~$32bn Canadian dollars ($24.7bn USD) in assets under management (AUM) on behalf of OMERS and third-party investors.
OMERS Infrastructure invests in sectors including energy, digital, transportation, and government-regulated services. The transaction with TPG Telecom will be OMERS Infrastructure’s first 100%-owned investment in Australia and its first investment in the digital infrastructure sector in the Asia-Pacific region. Within digital infrastructure, OMERS has made two investments to-date, both in Europe:
- Deutsche Glasfaser: in 2020, EQT Infrastructure (51%) and OMERS (49%) acquired Deutsche Glasfaser, a fiber-to-the-home (FTTH) provider to more than 600k households and 5k businesses across Germany
- XP Fibre: formerly SFR FTTH Network; XP Fibre is an alternative FTTH infrastructure wholesale operator in France, with a target of 5 million homes passed in the coming years