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TELECOMMUNICATIONS MERGER &ACQUISITION PERSPECTIVES2019800.644.1704 bkdcapitaladvisors.com
TELECOM M&A PERSPECTIVESOVERVIEW & OUTLOOKCONTENTSOver the last several years, demand for fast and reliable connectivity hasgrown exponentially. The telecom industry has experienced rapidconvergence in order to appeal to the digital age and is expected tocontinue to benefit from the rapid development of mobile devices, theincreased popularity of smart phones, the internet of things (IOT) andconnected cars.Transaction ActivityIn the third quarter of 2019, the Department of Justice approved thelong-awaited 26 billion merger of T-Mobile and Sprint. The merger wasalso approved by the FCC in early November but still faces headwindsfrom states suing to block the transaction. Other notable largetransactions include U.S. communications infrastructure provider ZayoGroup Holdings being taken private by Digital Colony and EQT in an 8.2 billion cash deal. The deal is expected to close in the first half ofcalendar 2020. Concurrently, several smaller service providers are alsocoming together in order to better compete with some of the dominatingtelecom players and increase their reach. As several largeconsolidations continue to play out as well as the rollout of 5G, thetelecom industry is seeing several opportunities to bolster currentrevenue sources as well as create additional streams.The volume of mergers and acquisitions in the telecommunicationservices industry decreased 9% in 2019 compared to 2018, in large partdue to several mega-mergers announced during fiscal 2018. Despitelower volume, the median capital invested increased 31% from 32million in fiscal 2018 to 42 million in fiscal 2019. Additionally, themedian capital invested has increased quarter over quarter throughoutthe entire fiscal 2019 to date. Much of this comes as a result of somelarger mergers characterizing the M&A environment for telecom serviceproviders. IBISWorld expects the industry to experience even furtherconsolidation over the next five years to 2024.Telecommunication Services DealsQ3 2017Q4 2017Q1 2018Q2 2018Q3 2018Q4 2018Q1 2019Q2 2019Q3 2019241223112521172013Industry HighlightsIndustry Segment TrendsWireless Telecom ServicesFiber Infrastructure &Broadband ServicesWireless TowersData CentersCable Service ProvidersBKD ServicesAbout BKD Capital AdvisorsABOUT BKDCAFounded in 1994, BKD CapitalAdvisors helps companies andstakeholders go beyond theirnumbers by creating valuethrough investment bankingsolutions that include mergers,acquisitions, sales,recapitalizations, managementbuyouts and financings.Median Capital InvestedQ3 2017Q4 2017Q1 2018Q2 2018Q3 2018Q4 2018Q1 2019Q2 2019Q3 2019 100 30 42 8 28 54 247 267 292Sources: S&P Capital IQ, IBISWorld Wireless Telecommunications Carriers in the US, and Deloitte 2019Telecommunications Industry Outlook.bkdcapitaladvisors.com2
TELECOM M&A PERSPECTIVESOVERVIEW & OUTLOOK, CONT.Relative Stock Price 3/31/196/30/19S&P 5009/30/19S&P Telecom Select Industry Index12/31/19Wireless Telecommunications ServicesFiber Infrastructure & Broadband ServicesWireless TowerData CenterCable Service ProviderEV/EBITDA Multiple YOY r InfrastructureTelecommunications& BroadbandServicesServicesWireless Towers12/31/2018Data Centers12/31/2019Source: S&P Capital IQbkdcapitaladvisors.com3Cable ServiceProviders
TELECOM M&A PERSPECTIVESTRANSACTION ACTIVITYTelecommunication Industry Median EV/Revenue .1x1.7x1.9x1.6x1.6xTelecommunication Industry Median EV/EBITDA 3Q42018Q1Q2Q32019Source: S&P Capital IQ , includes all telecommunications services dealsINDUSTRY HIGHLIGHTCross-Border Investment & Peak ConsolidationThe wireless carriers industry has witnessed a worldwide trend toward cross-borderinvestments. The clear trend toward cross-border activity is expected to persist in the face ofcontinued global uncertainty. Core drivers of this trend include the uncertainty surrounding theU.S. – China trade war, fueling European focused cross-border deals, and the desire tocompete 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 throughout2019. This cross-border investment trend is also fueled by the industry’s peak consolidationworld-wide. Consolidation has led the number of enterprises in the sector to decline at a CAGRof 2.2% over the past five years to 2019. With organic growth opportunities narrowing in themarketplace, in order to remain competitive and increase market share many U.S. players areforced to look overseas for further investment and merger activity.Source: IBISWorldbkdcapitaladvisors.com4
TELECOM M&A PERSPECTIVESTRENDS FOR WIRELESS TELECOMMUNICATION SERVICESTelecom service providers seeking to solve how to profitably manage and operate the next-generation 5G networkin their historically high-fixed cost environment have sought to diversify, with traditional wireless telcos entering thecontent and cable markets in historic mega deals while the cable companies enter the wireless markets. With thecontinued roll out of 5G, expect to see acquisitions of products and services enabled by the 5G network take thespot light.Select Transactions In July 2019, the Department of Justice (DOJ) formally approved the Sprint (S) and T-Mobile (TMUS) 26billion merger. Additionally, in early November 2019, the FCC voted in favor of the merger. However, thenation’s third and fourth largest wireless providers still face a lawsuit from several state attorney generalstrying 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 forapproximately 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 systemsdevelopment company, in what was considered to be a “fire-sale deal”–far less than the approximate 150million the company raised as a start up.U.S. Wireless Telecommunications Services Transactions2009 – 16132017111220182019Public ComparablesCompanyWireless Telecommunication ServicesAT&T Inc.Verizon Communications Inc.Sprint CorporationT‐Mobile US, Inc.Price(in US dollars)Ticker 12/31/2019TVZSTMUS 38.94 61.05 5.23 77.8652 WeekHighLow 39.70 62.22 8.06 85.22 28.09 52.28 5.15 62.41MedianMeanin millions of dollarsTTMTTMEnterpriseRevenue 2,055109,507246,450260,556Source: S&P Capital IQbkdcapitaladvisors.com5EBITDAMarginEV toSalesEV 88x2.46x2.56x2.48x9.02x7.87x5.24x8.62x8.25x7.69x
TELECOM M&A PERSPECTIVESTRENDS FOR FIBER INFRASTRUCTURE & BROADBAND SERVICESFiber broadband is going to play a crucial role in supporting the next generation 5G wireless network. Themobile 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 assmaller regional players join forces in order to compete for scale. Private transactions for pure-play fiberdeals can be north of 20x EBITDA whereas private LEC transactions have averaged in the 4-6x EBITDArange.Select Transactions Zayo (ZAYO) announced its plans to be taken private by Digital Colony and EQT in an 8.2 billion cashdeal expected to close in the first half of 2020. ZAYO operates a 209,214 fiber network in the U.S. andEurope and plans to leverage the partnership to accelerate growth. The deal is subject to regulationsand approval from shareholders. New York-based industry leader in engineering and installing commercial WiFi networks Deep BlueCommunications 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’sintelligent solutions. In September 2019, CenturyLink, Inc. (CTL) reached an agreement to acquire Streamroot, Inc., adeveloper of peer-to-peer video streaming technology for content delivery networks, for an undisclosedamount. The acquisition is expected to improve video and static content delivery within bandwidthconstrained areas.U.S. Fiber Infrastructure & Broadband Services Transactions2009 – 16171718201720182019Public ComparablesPrice(in US dollars)CompanyTicker 12/31/2019Fiber Infrastructure & Broadband ServicesCincinnati Bell Inc.CBB 10.50Cogent Communications Holdings, Inc. CCOI 65.90Zayo Group Holdings, Inc.ZAYO 34.63Frontier Communications Corporation FTR 0.93CenturyLink, Inc.CTL 13.1052 WeekHighLow 11.00 66.67 34.69 3.50 16.75 3.19 43.96 22.07 0.52 9.64MedianMeanin millions of dollarsTTMTTMEnterpriseRevenue ,77314,47117,526Source: S&P Capital IQbkdcapitaladvisors.com6EBITDAMarginEV toSalesEV 5.42x6.75x10.13x
TELECOM M&A PERSPECTIVESTRENDS FOR WIRELESS TOWERSThe rollout of the mobile 5G network is expected to drive the next major round in wireless towerinvestment mergers and acquisitions. The industry estimates millions of new wireless towers will beneeded to successfully deploy the 5G network nationwide. In the meantime, wireless tower owners areinvesting in redesigns to improve existing 4G LTE and provide a platform for various other services, suchas micro data centers (edge networks).Select Transactions As previously mentioned, Peppertree Capital Management agreed to acquire more than 1,000wireless towers from AT&T for approximately 680 million in late October 2019 in an aim to cut itsdebt.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 TowerCorporation (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 TowerSouth Africa in late October 2019, successfully integrating approximately 900 towers in the areaand expanding their global reach. SBA is confident moving forward with its long-term 5Gdeployment operation and looks to follow suit in international markets.U.S. Wireless Tower Transactions2009 – 420173120182019Public ComparablesPrice(in US dollars)Ticker 12/31/2019CompanyWireless TowersAmerican Tower Corporation (REIT)AMTCrown Castle International Corp. (REIT CCISBA Communications CorporationSBAC 227.99 141.02 238.8452 WeekHighLow 242.00 149.47 270.42 153.93 104.22 158.08MedianMeanin millions of dollarsTTMTTMEnterpriseRevenue 53,1883,121129,55182,23439,05282,23483,612Source: S&P Capital IQbkdcapitaladvisors.com7EBITDAMarginEV toSalesEV x16.63x16.80x26.54x25.79x30.17x26.54x27.50x
TELECOM M&A PERSPECTIVESTRENDS FOR DATA CENTERSThe market for data centers remains hot as enterprises continue to focus more on improving ITcapabilities and less on owning data center assets. As a result, there has been a large shift tooutsourcing cloud services using colocation facilities, and most importantly, sales of data centers. Thegrowth of cloud services has been and is expected to continue to drive data centers to utilize mergersand acquisitions to increase scale and their footprint and to address the hyper-scale competing playerssuch 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 dueto INXN’s European data center sites and its interconnection capabilities linking Europe to Asia, theMiddle 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 generatedapproximately 21 million of revenue during fiscal year 2018. The transaction is expected to close inthe 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 theleading investment manager and owner of assets in which the digital and real estate spacesintersect.U.S. Data Center Transactions2009 – 0161511201720182019Public ComparablesCompanyData CentersEquinix, Inc. (REIT)Digital Realty Trust, Inc.CyrusOne Inc.QTS Realty Trust, Inc.Price(in US dollars)Ticker 12/31/2019EQIXDLRCONEQTS 582.07 118.41 65.14 54.2452 WeekHighLow 609.97 136.32 79.73 55.13 343.58 100.05 48.94 35.08MedianMeanin millions of dollarsTTMTTMEnterpriseRevenue urce: S&P Capital IQbkdcapitaladvisors.com8EBITDAMarginEV toSalesEV .80x23.97x
TELECOM M&A PERSPECTIVESTRENDS FOR CABLE SERVICE PROVIDERSCable 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, manyin the industry subsector have turned to providing additional services such as broadband and wirelessservices to stay relevant.Select Transactions Sinclair Broadcast Group Inc. (SBGI) and The Walt Disney Company (DIS) announced thecompletion of the acquisition by SBGI of the equity interests in 21 Regional Sports Networks andFox College Sports, which were acquired by DIS in its 2017 acquisition of 21st Century Fox. DIS wasrequired to divest the 21 regional sports networks as part if its acquisition in order to receiveclearance from the Department of Justice. The 10.6 billion deal comes just one year after SBGI’scontribution 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 of21st Century Fox, which was originally announced in late 2017. With the close, DIS will takeownership of the 20th Century Fox film and TV studio, cable networks FX, FXX, National Geographicand certain other cable and international television assets. Shenandoah Telecommunications Company (SHEN) agreed to acquire assets of Big SandyBroadband, a Kentucky-based cable and broadband provider, in February 2019 for 10 million.U.S. Cable Service Provider Transactions2009 – 1652017420182019Public ComparablesCompanyCable Service ProvidersComcast CorporationCharter Communications, Inc.DISH Network CorporationAltice USA, Inc.Cable One, Inc.Price(in US dollars)Ticker 12/31/2019CMCS.ACHTRDISHATUSCABO 44.81 485.07 35.21 27.17 1,497.8052 WeekHighLow 47.27 487.52 44.66 31.78 1,569.74 33.30 279.11 23.89 16.21 782.01MedianMeanin millions of dollarsTTMTTMEnterpriseRevenue 5431,72141,6099,81741,609115,992Source: S&P Capital IQbkdcapitaladvisors.com9EBITDAMarginEV toSalesEV 19.04x11.57x12.50x
TELECOM M&A PERSPECTIVESBKD SERVICESAbundant services.Sheer precision.BKD, LLP offers a full range of services and industry-focused expertise to provide you with insightfulsolutions and help you stay a cut above the competition.FINANCIALASSURANCE Audit, review & compilations Benchmarking Internal audit Internal control studies SEC filings SOX 404 complianceCONSULTING Accounting outsourcing Bankruptcy consulting Budgeting & financial planning Cost accounting Employee benefit planstructuring & administering ESOP feasibility analysis Forecasts & projectionsFEDERAL & STATE TAXPLANNING & COMPLIANCE Compensation planning Corporate tax planning Inventory tax planning R&D tax credit enhancements Real estate cost segregationstudies Restructuring planning State & local tax planningFORENSICS & VALUATIONCONSULTING Bankruptcy services Business valuations Fraud prevention Litigation supportbkdcapitaladvisors.comINTERNATIONAL TAXSTRATEGIES DISC Expatriate assignmentservices Foreign tax credit planning Global structuring support Indirect global taxes Transfer pricingINVESTMENT & FINANCIALPLANNING Estate & gift planning Family tax planning Investment management Personal wealth planning Retirement planningTRANSACTION SERVICES Federal, state & local taxdiligence Financial diligence Operations diligence Technology diligenceGROWTH & ADVISORYINVESTMENT BANKING Mergers & acquisitions Company sales & divestitures Debt & equity recapitalizations Management buyouts Affiliations Succession planning Strategic options analysisECONOMIC DEVELOPMENT Expansion projects Grants & public incentivesINTERNATIONAL MARKET Development Exporting Direct investment Licensing AcquisitionsOPERATIONS MANAGEMENTPERFORMANCE ENHANCEMENTADVICE & KNOW-HOW (PEAK)METHODOLOGY Business process improvement Decision costing Inventory optimization Lean manufacturing Profit improvementTECHNOLOGYAPPLICATIONS SOFTWARE Best-Abra MAS 90, 200 & 500 Microsoft CRM Microsoft Dynamics AX Microsoft Dynamics GPIT SERVICES IT assessments & planning IT control reviews Project management assistance Security solutions & penetrationtestingSTRATEGIC TECHNOLOGY E-business planning IT assessments & planning Systems selection &implementation10
TELECOM M&A PERSPECTIVESTELECOM TEAM LEADINDUSTRY FOCUSKevin BrynestadManaging DirectorDenver, Colorado303.861.4545kbrynestad@bkd.comABOUT USThe professionals of BKDCA have more than 200 years of combinedexperience helping company owners plan for and execute their growth andexit strategies. From managing the sale of a company to negotiating theacquisition of a competitor or raising debt and equity capital to improvefinancial and operational flexibility, BKDCA can help you to develop a specificcourse of action for achieving your desired results.BKDCA, a wholly owned subsidiary of BKD, LLP, helps companies andstockholders go beyond their numbers by creating value through investmentbanking solutions that include mergers, acquisitions, sales, recapitalizations,management buyouts and financings.Technology,Media &TelecomConsumerServices &ProductsManufacturing & BusinessDistributionServicesFounded in 1994, BKDCA is staffed with experienced investment bankers andfinancial analysts. In addition, the firm draws on the resources of BKD with itsnetwork of accountants, auditors, tax professionals, business consultants andindustry-specific consultants.BKD OfficeBKD/BKDCA OfficeConstruction &EngineeringEnergyHealthCareFinancialServicesBKDCA is a member of the Financial Industry Regulatory Authority and the Securities InvestorProtection Corporation.bkdcapitaladvisors.com11
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 from states suing to block the transaction. Other notable large transactions include U.S. communications infrastructure provider Zayo Group Holdings being taken private by Digital Colony and EQT in an
