Singtel's ATN pays a high price for Australian towers

Australian Tower Network has agreed to acquire Axicom and its 2,000 telco towers for A$3.58 billion, over a billion dollars more than its own business was apparently worth just six months ago.

Singtel, which currently holds a 30% stake in ATN but will control a smaller share of the merged entity, announced the deal. However, it’s pretty clear that the driving force behind the acquisition is its partner, superannuation fund AustralianSuper, which picked up the other 70% of ATN from Singtel last year.

“AustralianSuper is looking to double its infrastructure portfolio over the next five years from its current A$31 billion. We believe that there will be significant growth in demand for digital infrastructure and will actively consider future opportunities in this space,” said Nik Kemp, head of infrastructure at AustralianSuper.

Ambitious words. But that’s what we have come to expect from the investment community when it comes to passive infrastructure assets.

AustralianSuper acquired its 70% stake in ATN late last year – it and Singtel announced the deal in October – via a deal that gave the towers company an enterprise value of A$2.3 billion; Singtel picked up around A$1.9 billion in cash proceeds to support its 5G business, amongst other things. That’s not the only way telcos are monetising their tower assets, but its a common one.

ATN had a portfolio of 2,312 towers at the time, with a further 565 new build-to-suit towers in the pipeline to be rolled out over three years. Axicom has fewer towers than that, and yet its purchase price is close to A$1.3 billion higher. Naturally, there is more to valuing a passive infrastructure company than simply counting its towers – much more – but it is a metric worth looking at.

When Singtel did the deal with AustralianSuper it was upbeat about the earnings multiples it represented: 38x pro forma EBITDA for full-year 2021, falling to 28x on completion of the build-to-suit programme. That was a healthy number, and in line with domestic rival Telstra’s towers deal three months earlier.

With Axicom being a private company, and its earnings information not being freely available, the number of towers is all we have to go on though.

The firm is currently owned by a consortium led by Macquarie Infrastructure and Real Assets that also includes Unisuper and UBS. Macquarie confirmed the sale of the asset to ATN, but provided no further details.

The consortium picked up what is now known as Axicom but was then Crown Castle Australia in May 2018 but declined to disclose the terms of the deal. All we know is that the company has added about 300 towers since then. It’s safe to speculate that Macquarie probably made a fair return on its investment.

As for Singtel, it seems a strange move on the part of the telco, owner of the Optus brand in Australia, to invest heavily into towers once more. But the terms of the deal that have been made public suggest that that isn’t actually the case.

As well as talking up the opportunity to scale up ATN’s operations via the Axicom deal, Singtel Group Chief Corporate Officer Lim Cheng Cheng noted that the acquisition “also reinforces Singtel’s commitment as a long-term investor in the Australian telecoms space.”

However, on completion of the deal, Singtel will see its stake in the merged ATN/Axicom business fall to 18% with AustralianSuper holding the remaining 82%. That says the financial firepower, as well as the ambition, came from the pension fund and that Singtel is hanging in there for the returns from the enlarged outfit.

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