Andrew Semenak, managing director, and Jonathan Lawrence, associate vice president, Pinpoint Capital Advisors(1), recently spoke with AGL Media Group Senior Editor J. Sharpe Smith about their approach to providing financial advice to clients and the M&A trends in the wireless infrastructure industry.
eDigest: In what areas do you specialize as an adviser?
Semenak: We are a boutique investment bank. We advise on transactions including asset and company sales, and we raise capital in the communications infrastructure sector, including wireless towers, land under towers, data centers and fiber. We raise capital and on transactions we typically represent the sell side, so we’re representing small and mid-market tower companies, ranging in enterprise value from $25 million up to several hundred million dollars.
eDigest: What value do you add to a transaction?
Semenak: We provide services that are critical in achieving a great outcome in a transaction. One is analytics. Two is marketing, and three is relationships and reputation.
In terms of analytics, we do a deep dive into our clients’ business. We develop detailed materials and financial analyses. Analytics provide us with key insights into our clients’ business or portfolio, including the lease-up potential in those markets and locations. What we’re trying to do is to uncover the growth drivers and unique characteristics, which we then market to potential buyers or sources of capital.
eDigest: What is the next step after the analytics are completed?
Semenak: We create compelling marketing materials and a marketing plan. We run a competitive, structured process that fuels bidder interest, builds momentum and utilizes our clients’ time efficiently and ensures integrity in the process, in order to maximize value. So, the marketing process is also very important.
eDigest: How important is your reputation in the industry?
Semenak: Our relationships and reputation are also a key piece of the value-add. We’re fortunate that our team has worked in the communications infrastructure sector for two decades. During that time, we’ve developed relationships with virtually all the sector players and many of the capital sources. So, when we bring in a new opportunity to market, people pay attention because I think they feel like we will have done our homework and what we’re bringing to the market is a compelling opportunity.
eDigest: What are the challenges you face in the M&A market?
Lawrence: Although it’s a very robust M&A market, there are lots of challenges to maximizing value for a client. Every business and every portfolio is different. Take a wireless tower portfolio for instance – every tower has different characteristics. It’s really about ensuring that we maximize the value given the unique characteristics of the assets or business. In respect of towers, it’s predicated on being able to analyze the portfolio and fully understand everything about it, including its revenue growth and lease-up prospects, and being able to communicate it to the potential acquirers. That’s not always an easy thing and requires real expertise and experience to do it effectively and efficiently for clients.
eDigest: Are you seeing companies trying to avoid paying the high prices of towers?
Semenak: What we have seen is companies or investors looking to partner with development teams as a way to, over time, invest in a portfolio at a cost base rather than a market-value base for already constructed assets. We expect that to continue.
eDigest: What would you advise the tower company to do if a buyer approaches it with an offer to purchase assets in an effort to avoid a competitive bidding process?
Lawrence: Small and mid-sized communications infrastucture owners should see pre-emptive offers as an indication of very strong prevailing demand in the marketplace. Running a competitive process through an experienced advisor is the way to maximize value on their assets.
eDigest: Which institutional investors, or capital sources, do you target the most with communications infrastructure investment opportunities?
Semenak: There has been a very significant shift from private equity to longer-term, lower-cost of capital institutional investors including infrastructure funds, pension plans, insurance companies and sovereign wealth funds. These are groups that we have developed very strong relationships with.
With the unprecedented demand for communications infrastructure, there has been a realization among these institutional investors that this is real essential infrastructure, which has created real demand for platforms that are experts in acquiring or developing communications infrastructure assets.
Lawrence: There continues to be a handful of mid-market private equity institutions in North America that have a long history of investment into, and expertise in, telecommunications. These firms have demonstrated an ability to diligence and get comfortable with communications infrastructure opportunities and compete with lower-cost of capital investors.
eDigest: What is the state of the fiber M&A market?
Semenak: The fiber sector saw robust M&A in 2018 and 2019, and then it exploded in 2020, which was probably a record year. It’s literally a land grab for fiber assets and interest is coming from both strategics consolidating to extend the breadth of their networks, and financial institutions backing fiber platforms. I would say fiber M&A is going to continue unabated in 2021, so we’re very bullish on fiber space in terms of deal making.
Lawrence: Infrastructure investment institutions are getting more and more comfortable with fiber, including residential fiber which does not feature the long-term contracts with strong-credit counterparties they are typically used to. They understand and are backing the broader macro trend – communications infrastructure is essential.
eDigest: What does the land-under-tower space look like?
Semenak: Deal activity in land under towers is now dominated by a handful of management teams that do it very, very well. And they’ll continue to control the market. They’re going to continue to amass those assets. So we do see some activity in the land-under-tower space in the coming year.
eDigest: How about the data center space?
Lawrence: The data center market has been very strong. It has benefited from COVID-19, particularly the hyperscale market and cloud-service providers. The thing that we did see in 2020 really pick up was data center development, and there’s no shortage of institutional interest in investing in platforms that are acquiring data centers, and also developing data centers in key markets in North America.
eDigest: What is your advice to tower companies that want to diversify into other areas such as fiber?
Lawrence: You don’t want to detract from your core tower business. New business offerings such as fiber or data centers, where we have started to see tower companies invest, take significant expertise and resources to manage effectively. It is important, particularly in this environment where the outlook for tower market revenue growth is strong through leasing and new builds, that tower companies maintain focus on their core tower business.
Semenak: Notwithstanding Jonathan’s comments, we think convergence is a key theme over the short-term and mid-term. It has to be in areas that are very close to your core competency. And you’ve got to consider that the operating fundamentals might be different. And you’ve always got to keep your sights on the valuation differences. Investors are going to be focused on the businesses that stick to their knitting, and they don’t necessarily want to have anything that detracts too far from that.
(1) Securities Products and Investment Banking Services are offered through BA Securities, LLC. Member FINRA SIPC. Pinpoint Capital Advisors Incorporated, a business consulting company and BA Securities, LLC are separate, unaffiliated entities.