Hey guys, any experience with this? I would assume that something with steady income per year, low capex would be simple (ie, mulitple varying on whether property is owned or leased, etc) but I could also see a fairly complex usage based model with cost per GB of data throughput forecasts.
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check out research on American tower etc for tower valuation methodology.
what market are you looking at - if EM - look at tower buildout schedule, industry tower capacity, new telecom entrants etc.
For capex - dont forget maintenance spend.
Tenancy ratios are a key metric when you look at this industry. I havent seen cost per GB of data metric before - but I suppose the structure of the industry contracts (e.g. telcos leasing space from the tower companies, versus other models) could drive the revenues.
Depends whether lease is triple net?
Couldnt you just factor in a reserve ratio from net operating income
Greenfield method
Seen Tower Cash Flow used a lot as a metric - EV/TCF multiples ...
Likely the most simple asset to value in the world. You take tower cash flow and apply a multiple. I think Public Comps are trading somewhere around 15x. Which if you think about what a multiple actually means makes sense, as most of the tenants are 10-15 year contracts.
Tower cash flow is: Tower Rent from Tenants less: Rent for the ground that the tower is on less: Power, security and COGS items related to that tower Equals: Tower Cash Flow
^ This.
Very helpful publicequity. It looks like it is just applying comps from similar trxs based on current/remaining capacity, location, barriers to new towers, etc. Thanks for the insight
I have an Info Memo of a tower LBO in the office(it's from a while back and we didn't do the deal / buy into the debt), will come back with key considerations if I can remember.
oreos, would be super helpful if you could provide additional information with that!
As the guys have said previous it’s a pretty simple valuation, in fact the model we were sent by the pitching fund was one of the most simplistic I’ve ever seen (yea funds don't like to give too much away and often don't, but it's not like they locked it just a very simple live model [usually locked projections if not wanting to give anything away]). So I may not be adding much with the following passage but I need a break from what I’m meant to be doing.
In the case I have, the company would rent space on it’s antennas for telecoms (and spuriously for advertising since most masts were near major roads) and offered little to no extra services, e.g. the responsibility to supply of electricity fell onto the customer, only the infrastructure was supplied.
It was law in this country (not USA) to rent space to competing masts firms at market rates (to reduce duplication of masts on the same land). Creates significant first mover advantages.
As you’d expect not all masts were created equal with some harbouring the ability for extensions / fitting of greater tech. So maintenance costs and future marketability of masts is a consideration. The stock of masts was 70/30 new/old, a reasonable ratio given the nature of the asset ( a stick in the ground ).
Contracts with telecoms companies are usually 5 – 10 years with automatic extension unless requested otherwise. Churn away from mast supplier is costly and thus low. The debtor in this case guaranteed minimum indexed payments for 15 years to attract financing. The rental contract, largest % of costs, of the land the masts were placed on were also inflation linked and renewed automatically, again low churn since owner of land can’t do much with such a small piece of land other than rent to masts. Maintenance was outsourced on an ad hoc basis. Everything is very stable, very predictable.
Growth is driven, obviously by mobile data traffic and the role out of new mobile internet services (in our case the country was at the early stages of this) and was estimated at 1.5% p.a.. Barriers are high. Once a site is established direct competition is prohibited by law.
Debt/EBITDA started at 6.91 amortising to 0 or until refi, LLCR min 1.98, implied EV / EBITDA pre buyout was 12x, post buyout 23.4, implied EV/FCF post 23.5. (EV multiples are without transaction costs). 50% cash sweep after yr 6.
Opex growth assumed constant at 1.5x, Revenue Growth 1.5x declining to 0.75 after 5yrs, little depreciation,
Hope this helped.
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