TIM SA, a wireless carrier in Brazil owned by Telecom Italia, today announced it has entered into an exclusivity agreement with IHS Brasil Participações Ltda (IHS) to spin-off and sell an equity interest in FiberCo Soluções de Infraestrutura Ltda (FiberCo), its fiber broadband business. Specifically, FiberCo has been set-up to create an open wholesale fiber network in Brazil and to provide residential fiber optic broadband services.

TIM SA expects that formal signing of the transaction will occur at the end of March or early April 2021. Notably, during the company’s March 2021 investor day, known as TIM Brasil Day, the company highlighted that there are “double-digits EV/EBITDA multiples involved” for the FiberCo transaction.

FiberCo will operate as a neutral wholesale fiber company, with TIM SA as the anchor tenant. Indeed, FiberCo will provide fiber connectivity services for last-mile and transport networks, for all market operators. For example, this wholesale access will be offered to carriers including Claro (owned by América Móvil), Vivo (Telefônica Brasil), and Oi S.A., which is in the process of being acquired.

TIM SA – Fixed Broadband Fiber Assets in Brazil

TIM SA ended 2020 with 3.2 million homes passed with fiber-to-the-home (FTTH) and 3.7 million units with fiber-to-the-cabinet (FTTC) infrastructure. Overall, this totals 6.4 million homes passed, in 35 cities across Brazil, with FTTH and FTTC infrastructure.

The company’s fiber offering, known as TIM Live, had a customer base totaling 645k at the end of 2020. Specifically, 299k of these subscribers were FTTH customers and 346k were FTTC customers. Therefore, TIM SA’s fiber-to-the-home (FTTH) penetration is currently quite low at only 9.3%. Overall, the deal between TIM SA and IHS shows that there is significant runway to increase this fiber-to-the-home (FTTH) penetration in the coming years.

Transaction Rationale – FiberCo Spin-Off – TIM SA, IHS

Operations – FiberCo

FiberCo will accelerate TIM SA’s fiber infrastructure coverage, which in turn, will grow its residential broadband business. Specifically, the company will use this transaction to grow its last-mile fiber infrastructure including fiber-to-the-home (FTTH) and fiber-to-the-cabinet (FTTC). Notably, TIM SA’s fiber backbone and backhaul are not included in this transaction.

Over the next three years, TIM SA and IHS will continue FiberCo’s fiber footprint expansion in Brazil. At the same time, TIM SA and IHS will upgrade FiberCo’s existing network from copper to fiber infrastructure. In terms of transaction structure, IHS will purchase an initial ownership interest in FiberCo and then invest further in the business through follow-on investments for future fiber deployments.

By 2022, TIM SA has set a goal to offer fiber-to-the-home (FTTH) in 70 cities across Brazil. Additionally, by 2022, the company intends to pass 5.5 million homes (a 72% increase from current levels).

Valuation – FiberCo

TIM SA expects that the spin-off of FiberCo with IHS will unlock the appropriate valuation multiple for part of TIM’s fiber digital infrastructure. Specifically, infrastructure valuation multiples are considerably higher than those of telecom services companies like TIM SA. Indeed, the company references this notion by stating that FiberCo will be valued at “double-digits EV/EBITDA multiples”.

IHS Holding – Overview

IHS Holding is the parent company of IHS Brasil Participações Ltda. Overall, IHS Holding is a provider of telecommunications infrastructure, focused on emerging markets. The company operates in nine countries throughout Africa, the Middle East, and Latin America. Notably, IHS has 27.8k towers globally and is seeking to broaden its digital infrastructure portfolio with an investment in TIM SA’s FiberCo.

Key Shareholders

IHS Holding’s owners include a consortium of global investors. Notably, MTN Group (29% equity interest) and Wendel Group (21% equity interest) are the largest shareholders of IHS. Additionally, International Finance Corporation (IFC), Government of Singapore Investment Corporation (GIC), Korea Investment Corporation (KIC), and Emerging Capital Partners (ECP) are shareholders of IHS Holding.

Fiber – Precedent M&A Transactions

Today’s announcement with IHS, closely follows a similar transaction which Telefónica announced with CDPQ, in early March 2021, for FiBrasil, its fiber optic network in Brazil. Specifically, CDPQ is acquiring a 50% stake in Telefónica’s existing Brazil fiber optic network and investing a total of up to $321m U.S. dollars in the joint venture. Indeed, this transaction implies a valuation multiple of 16.5x EBITDA for the brownfield assets contributed by Telefônica Brasil.

Additionally, Telefónica announced a separate deal with KKR, in February 2021, for its fiber optic network in Chile. Specifically, KKR is acquiring a 60% stake in Telefónica’s existing Chile fiber optic network, at a $1bn U.S. dollar valuation. Indeed, this implies a valuation multiple of 18.4x EBITDA for Telefónica’s Chile InfraCo business.

For further comparable transactions, check out our comprehensive list of fiber precedent M&A transactions here.

Jonathan Kim covers Fiber for Dgtl Infra, including Zayo Group, Cogent Communications (NASDAQ: CCOI), Uniti Group (NASDAQ: UNIT), Lumen Technologies (NYSE: LUMN), Frontier Communications (NASDAQ: FYBR), Consolidated Communications (NASDAQ: CNSL), and many more. Within Fiber, Jonathan focuses on the sub-sectors of wholesale / dark fiber, enterprise fiber, fiber-to-the-home (FTTH), fiber-to-the-premises (FTTP), and subsea cables. Jonathan has over 8 years of experience in research and writing for Fiber.


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