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Vantage Towers boasts €1 billion-plus war chest for M&A

Vodafone’s newly spun-out towers business is looking for acquisitions to drive growth, focusing on macro towers sites and adjacent opportunities, and has earmarked a sizeable sum for the purpose.

“We have preserved over €1 billion of cash investment firepower for such strategic investments,” said chief executive Vivek Badrinath, speaking at the company’s virtual capital markets day on Tuesday. Further, the company can add to this figure with “meaningful additional share issuance,” he said.

Badrinath was surprisingly forthcoming about the company’s plans for inorganic expansion.

Possible M&A opportunities could include “acquiring additional macro sites, as we recently did with Wind Hellas in Greece; expanding our capability in adjacent segments with high-growth potential, like fibre, small cells, private networks deployment businesses; [and] acquiring portfolios in new geographies where it makes sense,” he explained.

“To be clear, we will be looking at assets where we can develop leadership positions with high-quality anchor tenants, ideally underpinned by network-sharing arrangements. Where there is an attractive industrial opportunity, you will see us paying attention,” he added.

Badrinath highlighted the merger of Vodafone’s passive infrastructure in Italy into TIM’s INWIT unit and a similar merger with Wind Hellas earlier this year. These two deals are “good examples of the type of M&A you can expect,” he said. Vantage Towers will prioritise owning and building major tower infrastructure operations with market-leading MNOs as anchor tenants under long-term master services agreements and bound to its grid with network-sharing agreements, just like the Italy and Greece transactions. “Deals like this we like, and we will look to replicate them,” he said.

But the company sees solid organic expansion opportunities too.

“The European tower sector has significant room for growth,” Badrinath said, noting that, amongst other things, towers outsourcing by MNOs is as much as 10 points lower in Europe now than it was in the US 20 years ago; last year tower outsourcing was at 90% in the US and just 42% in Europe. In addition, tenancy ratios in Europe average around 1.5 compared with 2 in the US, which leaves significant headroom.

5G will bring network densification and, in many markets, operators are saddled with hefty network coverage obligations for 5G, which will drive growth in the short-to-medium term.

“We expect to grow our tenancies by over 15,500 over the medium term,” to reach a ratio of 1.5, Badrinath said. The company already has commitments for 13,400 of those, with a pipeline “multiple times larger” than the remainder of the target.

Its tenancy ratio is currently at around 1.38 based on 45,500 towers, excluding Italy. Including INWIT, its towers portfolio stands at 67,600.

In the most recent full year Vantage Towers turned in pro forma revenue of €945 million and targets €955 million-€970 million for full year 2021; in the first half its turnover came in at €479 million. Its medium-term goal is a CAGR of mid-single digits.

As it stands, Vodafone is responsible for 80% of revenue, with other major clients including Deutsche Telekom, Orange, TIM, Wind and Nos contributing the remainder. “Driving tenancy revenues beyond Vodafone is a KPI,” for the operator’s management incentive plan, Badrinath said.

In this regard, Germany – Vantage Towers’ largest market, contributing 43% to EBITDA, after leases – is particularly important. The operator aims to capture significant demand for new towers in Germany, both from major operators looking to increase 5G coverage and from new market entrant 1&1 Drillisch, which is building out its network.

Speaking of earnings, the operator turned in EBITDA, after leases, of €523 million last year and targets €530 million-€540 million this year, with a margin percentage in the high 50s in the medium term. Recurring free cash flow was €373 million last year – and €190 million in 1H 2021 – and should come in at €375 million-€385 million this year, with a mid-to-high single digit CAGR projected for the medium term.

“We plan to pay out 60% of recurring free cash flow as dividends,” Badrinath said.

That’s a sizeable pay out for shareholders…which for now comprise just Vodafone, until next year’s IPO at least.


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