TELECOMMUNICATIONS MERGER & ACQUISITION PERSPECTIVES - 2019 bkdcapitaladvisors.com
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TELECOMMUNICATIONS MERGER &
ACQUISITION PERSPECTIVES
2019
800.644.1704 | bkdcapitaladvisors.com
TELECOM M&A PERSPECTIVES
OVERVIEW & OUTLOOK CONTENTS
Over the last several years, demand for fast and reliable connectivity has Transaction Activity
grown exponentially. The telecom industry has experienced rapid
Industry Highlights
convergence in order to appeal to the digital age and is expected to
continue to benefit from the rapid development of mobile devices, the Industry Segment Trends
increased popularity of smart phones, the internet of things (IOT) and
connected cars. Wireless Telecom Services
Fiber Infrastructure &
In the third quarter of 2019, the Department of Justice approved the
Broadband Services
long-awaited $26 billion merger of T-Mobile and Sprint. The merger was
also approved by the FCC in early November but still faces headwinds Wireless Towers
from states suing to block the transaction. Other notable large
transactions include U.S. communications infrastructure provider Zayo Data Centers
Group Holdings being taken private by Digital Colony and EQT in an Cable Service Providers
$8.2 billion cash deal. The deal is expected to close in the first half of
calendar 2020. Concurrently, several smaller service providers are also BKD Services
coming together in order to better compete with some of the dominating
About BKD Capital Advisors
telecom players and increase their reach. As several large
consolidations continue to play out as well as the rollout of 5G, the
telecom industry is seeing several opportunities to bolster current
ABOUT BKDCA
revenue sources as well as create additional streams. Founded in 1994, BKD Capital
Advisors helps companies and
The volume of mergers and acquisitions in the telecommunication
stakeholders go beyond their
services industry decreased 9% in 2019 compared to 2018, in large part
due to several mega-mergers announced during fiscal 2018. Despite
numbers by creating value
lower volume, the median capital invested increased 31% from $32 through investment banking
million in fiscal 2018 to $42 million in fiscal 2019. Additionally, the solutions that include mergers,
median capital invested has increased quarter over quarter throughout acquisitions, sales,
the entire fiscal 2019 to date. Much of this comes as a result of some recapitalizations, management
larger mergers characterizing the M&A environment for telecom service buyouts and financings.
providers. IBISWorld expects the industry to experience even further
consolidation over the next five years to 2024.
Telecommunication Services Deals Median Capital Invested
Q3 2017 24 Q3 2017 $100
Q4 2017 12 Q4 2017 $30
Q1 2018 23 Q1 2018 $42
Q2 2018 11 Q2 2018 $8
Q3 2018 25 Q3 2018 $28
Q4 2018 21 Q4 2018 $54
Q1 2019 17 Q1 2019 $247
Q2 2019 20 Q2 2019 $267
Q3 2019 13 Q3 2019 $292
Sources: S&P Capital IQ, IBISWorld Wireless Telecommunications Carriers in the US, and Deloitte 2019
Telecommunications Industry Outlook.
bkdcapitaladvisors.com 2
TELECOM M&A PERSPECTIVES
OVERVIEW & OUTLOOK, CONT.
Relative Stock Price Index
160%
150%
140%
130%
120%
110%
100%
90%
80%
70%
12/31/18 3/31/19 6/30/19 9/30/19 12/31/19
S&P 500 S&P Telecom Select Industry Index
Wireless Telecommunications Services Fiber Infrastructure & Broadband Services
Wireless Tower Data Center
Cable Service Provider
EV/EBITDA Multiple YOY Comparison
30.0x
26.5x
25.0x 23.8x
20.7x
20.0x 18.9x
15.0x
11.6x
10.0x 8.2x 8.9x
6.9x 6.9x 6.8x
5.0x
0.0x
Wireless Fiber Infrastructure Wireless Towers Data Centers Cable Service
Telecommunications & Broadband Providers
Services Services
12/31/2018 12/31/2019
Source: S&P Capital IQ
bkdcapitaladvisors.com 3
TELECOM M&A PERSPECTIVES
TRANSACTION ACTIVITY
Telecommunication Industry Median EV/Revenue Multiples
4.3x
3.5x 3.5x
2.9x
1.9x 2.0x 2.1x 1.9x
1.7x 1.7x 1.7x 1.6x 1.6x
1.4x
0.9x
Telecommunication Industry Median EV/EBITDA Multiples
15.5x
11.1x
9.7x 9.5x
8.4x 7.8x 8.3x 8.5x 7.8x
7.1x 6.2x 6.6x
5.8x
4.5x 3.8x
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2016 2017 2018 2019
Source: S&P Capital IQ , includes all telecommunications services deals
INDUSTRY HIGHLIGHT
Cross-Border Investment & Peak Consolidation
The wireless carriers industry has witnessed a worldwide trend toward cross-border
investments. The clear trend toward cross-border activity is expected to persist in the face of
continued global uncertainty. Core drivers of this trend include the uncertainty surrounding the
U.S. – China trade war, fueling European focused cross-border deals, and the desire to
compete with superior technologies such as the roll-out of the 5G network.
As a result, Europe experienced a wave of M&A activity in 2018 that has persisted throughout
2019. This cross-border investment trend is also fueled by the industry’s peak consolidation
world-wide. Consolidation has led the number of enterprises in the sector to decline at a CAGR
of 2.2% over the past five years to 2019. With organic growth opportunities narrowing in the
marketplace, in order to remain competitive and increase market share many U.S. players are
forced to look overseas for further investment and merger activity.
Source: IBISWorld
bkdcapitaladvisors.com 4
TELECOM M&A PERSPECTIVES
TRENDS FOR WIRELESS TELECOMMUNICATION SERVICES
Telecom service providers seeking to solve how to profitably manage and operate the next-generation 5G network
in their historically high-fixed cost environment have sought to diversify, with traditional wireless telcos entering the
content and cable markets in historic mega deals while the cable companies enter the wireless markets. With the
continued roll out of 5G, expect to see acquisitions of products and services enabled by the 5G network take the
spot light.
Select Transactions
In July 2019, the Department of Justice (DOJ) formally approved the Sprint (S) and T-Mobile (TMUS) $26
billion merger. Additionally, in early November 2019, the FCC voted in favor of the merger. However, the
nation’s third and fourth largest wireless providers still face a lawsuit from several state attorney generals
trying to block the merger before the deal can officially go through.
Dish Network has agreed to take $5 billion worth of wireless assets off of Sprint and T-Mobile's hands.
This deal with satellite TV provider Dish likely gave the DOJ what it needed to give its blessing for the
$26.5 billion mega-merger. The deal will cost about $1.5 billion for prepaid mobile businesses and
$3.5 billion for spectrum, according to a report from Bloomberg.
Peppertree Capital Management agreed to acquire more than 1,000 wireless towers from AT&T for
approximately $680 million in late October 2019 in an aim to cut its debt.
In February 2019, Amazon (AMZN) announced a $97 million acquisition of Eero Inc., a mesh WiFi systems
development company, in what was considered to be a “fire-sale deal”–far less than the approximate $150
million the company raised as a start up.
U.S. Wireless Telecommunications Services Transactions
2009 – 2019
32
25
21
19 19
15 16
13 12
10 11
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Public Comparables
Price in millions of dollars
(in US dollars) 52 Week TTM TTM Enterprise EBITDA EV to EV to
Company Ticker 12/31/2019 High Low Revenue EBITDA Value Margin Sales EBITDA
Wireless Telecommunication Services
AT&T Inc. T $38.94 $39.70 $28.09 182,365 54,028 487,268 29.6% 2.67x 9.02x
Verizon Communications Inc. VZ $61.05 $62.22 $52.28 131,374 48,698 383,392 37.1% 2.92x 7.87x
Sprint Corporation S $5.23 $8.06 $5.15 32,979 11,833 62,055 35.9% 1.88x 5.24x
T‐Mobile US, Inc. TMUS $77.86 $85.22 $62.41 44,565 12,702 109,507 28.5% 2.46x 8.62x
Median 87,970 30,700 246,450 32.8% 2.56x 8.25x
Mean 97,821 31,815 260,556 32.8% 2.48x 7.69x
Source: S&P Capital IQ
bkdcapitaladvisors.com 5TELECOM M&A PERSPECTIVES
TRENDS FOR FIBER INFRASTRUCTURE & BROADBAND SERVICES
Fiber broadband is going to play a crucial role in supporting the next generation 5G wireless network. The
mobile 5G network will only function successfully with a comprehensive fiber broadband infrastructure.
Mergers and acquisitions may be off to a slower start in early 2019 but we expect to see deals ramp up as
smaller regional players join forces in order to compete for scale. Private transactions for pure-play fiber
deals can be north of 20x EBITDA whereas private LEC transactions have averaged in the 4-6x EBITDA
range.
Select Transactions
Zayo (ZAYO) announced its plans to be taken private by Digital Colony and EQT in an $8.2 billion cash
deal expected to close in the first half of 2020. ZAYO operates a 209,214 fiber network in the U.S. and
Europe and plans to leverage the partnership to accelerate growth. The deal is subject to regulations
and approval from shareholders.
New York-based industry leader in engineering and installing commercial WiFi networks Deep Blue
Communications reached an agreement in early Q2 2019 to be acquired by Comcast Corporation
(CMCS.A). The acquisition allows Comcast to combine its scale, speed and reliability with Deep Blue’s
intelligent solutions.
In September 2019, CenturyLink, Inc. (CTL) reached an agreement to acquire Streamroot, Inc., a
developer of peer-to-peer video streaming technology for content delivery networks, for an undisclosed
amount. The acquisition is expected to improve video and static content delivery within bandwidth
constrained areas.
U.S. Fiber Infrastructure & Broadband Services Transactions
2009 – 2019
46 46
42
38
33
24 23
20 18
17 17
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Public Comparables
Price in millions of dollars
(in US dollars) 52 Week TTM TTM Enterprise EBITDA EV to EV to
Company Ticker 12/31/2019 High Low Revenue EBITDA Value Margin Sales EBITDA
Fiber Infrastructure & Broadband Services
Cincinnati Bell Inc. CBB $10.50 $11.00 $3.19 1,545 392 2,649 25.4% 1.71x 6.75x
Cogent Communications Holdings, Inc. CCOI $65.90 $66.67 $43.96 524 175 3,656 33.4% 6.98x 20.91x
Zayo Group Holdings, Inc. ZAYO $34.63 $34.69 $22.07 2,576 1,166 14,471 45.3% 5.62x 12.41x
Frontier Communications Corporation FTR $0.93 $3.50 $0.52 8,289 3,330 17,082 40.2% 2.06x 5.13x
CenturyLink, Inc. CTL $13.10 $16.75 $9.64 22,609 9,183 49,773 40.6% 2.20x 5.42x
Median 2,576 1,166 14,471 40.2% 2.20x 6.75x
Mean 7,109 2,849 17,526 37.0% 3.71x 10.13x
Source: S&P Capital IQ
bkdcapitaladvisors.com 6TELECOM M&A PERSPECTIVES
TRENDS FOR WIRELESS TOWERS
The rollout of the mobile 5G network is expected to drive the next major round in wireless tower
investment mergers and acquisitions. The industry estimates millions of new wireless towers will be
needed to successfully deploy the 5G network nationwide. In the meantime, wireless tower owners are
investing in redesigns to improve existing 4G LTE and provide a platform for various other services, such
as micro data centers (edge networks).
Select Transactions
As previously mentioned, Peppertree Capital Management agreed to acquire more than 1,000
wireless towers from AT&T for approximately $680 million in late October 2019 in an aim to cut its
debt.
U.S. Tower Portfolio of Grain Management, LLC, a portfolio of wireless communications assets,
entered into a definitive agreement in the third quarter of 2019 to be acquired by American Tower
Corporation (REIT) (AMT) in a $500 million deal. AMT acquired approximately 400 towers,
comprising one of the largest privately-held wireless portfolios in the United States.
SBA Communications Corporation officially closed on its $140 million acquisition in Atlas Tower
South Africa in late October 2019, successfully integrating approximately 900 towers in the area
and expanding their global reach. SBA is confident moving forward with its long-term 5G
deployment operation and looks to follow suit in international markets.
U.S. Wireless Tower Transactions
2009 – 2019
16
14
12
10 10 10
5 5
4 1
3
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Public Comparables
Price in millions of dollars
(in US dollars) 52 Week TTM TTM Enterprise EBITDA EV to EV to
Company Ticker 12/31/2019 High Low Revenue EBITDA Value Margin Sales EBITDA
Wireless Towers
American Tower Corporation (REIT) AMT $227.99 $242.00 $153.93 7,789 4,881 129,551 62.7% 16.63x 26.54x
Crown Castle International Corp. (REIT CCI $141.02 $149.47 $104.22 5,837 3,188 82,234 54.6% 14.09x 25.79x
SBA Communications Corporation SBAC $238.84 $270.42 $158.08 1,985 1,295 39,052 65.2% 19.68x 30.17x
Median 5,837 3,188 82,234 62.7% 16.63x 26.54x
Mean 5,203 3,121 83,612 60.8% 16.80x 27.50x
Source: S&P Capital IQ
bkdcapitaladvisors.com 7TELECOM M&A PERSPECTIVES
TRENDS FOR DATA CENTERS
The market for data centers remains hot as enterprises continue to focus more on improving IT
capabilities and less on owning data center assets. As a result, there has been a large shift to
outsourcing cloud services using colocation facilities, and most importantly, sales of data centers. The
growth of cloud services has been and is expected to continue to drive data centers to utilize mergers
and acquisitions to increase scale and their footprint and to address the hyper-scale competing players
such as Amazon, Microsoft and Google.
Select Transactions
Digital Realty Trust (DLR) entered into an agreement to acquire InterXion Holding N.V. (INXN) for
$6.8 billion in October 2019. The strategic acquisition will give Digital DLR a huge global boost due
to INXN’s European data center sites and its interconnection capabilities linking Europe to Asia, the
Middle East and Africa.
Equinix Inc. (EQIX) entered into an agreement to acquire three Mexico-based data centers of Axtel,
S.A.B. de C.V. for approximately $180 million in early October 2019. The three facilities generated
approximately $21 million of revenue during fiscal year 2018. The transaction is expected to close in
the first quarter of 2020.
Colony Capital (CLNY) acquired communications infrastructure operator Digital Bridge Holdings,
LLC for approximately $330 million in July 2019 as part of CLNY’s strategy to evolve into being the
leading investment manager and owner of assets in which the digital and real estate spaces
intersect.
U.S. Data Center Transactions
2009 – 2019
29
23 22
19
17
15 15
13 13
11
9
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Public Comparables
Price in millions of dollars
(in US dollars) 52 Week TTM TTM Enterprise EBITDA EV to EV to
Company Ticker 12/31/2019 High Low Revenue EBITDA Value Margin Sales EBITDA
Data Centers
Equinix, Inc. (REIT) EQIX $582.07 $609.97 $343.58 5,365 2,329 60,339 43.4% 11.25x 25.91x
Digital Realty Trust, Inc. DLR $118.41 $136.32 $100.05 3,206 1,770 38,369 55.2% 11.97x 21.68x
CyrusOne Inc. CONE $65.14 $79.73 $48.94 949 476 10,296 50.2% 10.85x 21.61x
QTS Realty Trust, Inc. QTS $54.24 $55.13 $35.08 468 190 5,076 40.6% 10.83x 26.66x
Median 2,077 1,123 24,332 46.8% 11.05x 23.80x
Mean 2,497 1,191 28,520 47.4% 11.23x 23.97x
Source: S&P Capital IQ
bkdcapitaladvisors.com 8TELECOM M&A PERSPECTIVES
TRENDS FOR CABLE SERVICE PROVIDERS
Cable Companies in the U.S. have been active in M&A to help stave off competition from over-the-top
(OTT) content providers such as Netflix and Amazon. As the pay TV market continues to shrink, many
in the industry subsector have turned to providing additional services such as broadband and wireless
services to stay relevant.
Select Transactions
• Sinclair Broadcast Group Inc. (SBGI) and The Walt Disney Company (DIS) announced the
completion of the acquisition by SBGI of the equity interests in 21 Regional Sports Networks and
Fox College Sports, which were acquired by DIS in its 2017 acquisition of 21st Century Fox. DIS was
required to divest the 21 regional sports networks as part if its acquisition in order to receive
clearance from the Department of Justice. The $10.6 billion deal comes just one year after SBGI’s
contribution to Byron Allen’s buyout of The Weather Channel.
• In March 2019, DIS finally closed its $71.3 billion acquisition of the major entertainment assets of
21st Century Fox, which was originally announced in late 2017. With the close, DIS will take
ownership of the 20th Century Fox film and TV studio, cable networks FX, FXX, National Geographic
and certain other cable and international television assets.
• Shenandoah Telecommunications Company (SHEN) agreed to acquire assets of Big Sandy
Broadband, a Kentucky-based cable and broadband provider, in February 2019 for $10 million.
U.S. Cable Service Provider Transactions
2009 – 2019
17 17
13
12 12 12
10
7
6
5
4
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Public Comparables
Price in millions of dollars
(in US dollars) 52 Week TTM TTM Enterprise EBITDA EV to EV to
Company Ticker 12/31/2019 High Low Revenue EBITDA Value Margin Sales EBITDA
Cable Service Providers
Comcast Corporation CMCS.A $44.81 $47.27 $33.30 108,390 33,675 309,857 31.1% 2.86x 9.20x
Charter Communications, Inc. CHTR $485.07 $487.52 $279.11 45,234 16,152 186,954 35.7% 4.13x 11.57x
DISH Network Corporation DISH $35.21 $44.66 $23.89 12,874 2,477 31,721 19.2% 2.46x 12.81x
Altice USA, Inc. ATUS $27.17 $31.78 $16.21 9,741 4,214 41,609 43.3% 4.27x 9.87x
Cable One, Inc. CABO $1,497.80 $1,569.74 $782.01 1,119 516 9,817 46.1% 8.77x 19.04x
Median 12,874 4,214 41,609 35.7% 4.13x 11.57x
Mean 35,472 11,407 115,992 35.1% 4.50x 12.50x
Source: S&P Capital IQ
bkdcapitaladvisors.com 9TELECOM M&A PERSPECTIVES
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bkdcapitaladvisors.com 10TELECOM M&A PERSPECTIVES
TELECOM TEAM LEAD INDUSTRY FOCUS
Kevin Brynestad
Managing Director
Denver, Colorado
303.861.4545
kbrynestad@bkd.com
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