OTPP and Spark's Connexa Acquires 2degrees Mobile's Tower Assets
Spark New Zealand's independent tower unit Connexa has agreed a deal to acquire 2degrees’ passive infrastructure.
The deal is worth NZ $1.1 billion ($701.6m) and covers infrastructure across the country.
The deal sees Connexa scoop 1,124 towers from NZ telco 2degrees, with the seller entering a 20-year agreement with Connexa (plus rights of renewal) to secure access to existing and new towers.
This transaction also includes a commitment to build and co-location 450 sites over the next decade.
Connexa now operates as an independent unit from Spark NZ, after the operator sold a 70 percent stake in Spark’s passive mobile infrastructure assets to the Ontario Teachers’ Pension Plan in July 2022. The transaction was only finalized in October 2022 for NZ $900m ($573m).
In a statement Spark, NZ CEO Jolie Hodson said: “We believe that the addition of 2degrees’ passive mobile tower assets into Connexa will deliver greater operational efficiencies that will support more infrastructure sharing, better network economics, and faster deployment of new digital infrastructure across Aotearoa."
However, Spark NZ also confirmed that it will not provide equity to the acquisition, with its shareholding in Connexa diluting from 30 percent down to 17 percent.
The deal is still subject to approval from New Zealand’s Commerce Commission and the Overseas Investment Office. It is expected to be completed by midway through next year.
Formerly known as NZ Communications and Econet Wireless, 2degrees launched in 2009 and offers mobile and broadband services across New Zealand. Earlier this year it merged with Vocus NZ.
2degrees is owned by Voyage Australia Pty Limited and is part of its Vocus Group; it was previously owned by US-based Trilogy International Partners.
Late last week, Ontario Teachers' put out a press release stating that it and Connexa announced and agreement to acquire 2degrees’ tower assets:
Connexa and Ontario Teachers’ Pension Plan (“Ontario Teachers’”) today announced they have reached an agreement with 2degrees Mobile (“2degrees”), an entity owned by managed funds of Macquarie Asset Management and Aware Super, to acquire 2degrees’ passive1 mobile telecommunications tower assets for NZ$1,076m.
Connexa was formed following the sale of a 70% stake in Spark New Zealand’s (“Spark”) passive mobile tower infrastructure assets to Ontario Teachers’ in July 2022, with the transaction closing in October 2022.
2degrees currently owns and operates approximately 1,1242 mobile towers located across Aotearoa New Zealand. Under the terms of the deal, 2degrees has entered into a 20 year-agreement with Connexa (plus rights of renewal) to secure access to existing and new towers, with an additional tower build and co-location commitment of 450 sites over the next 10 years.
Connexa CEO Rob Berrill said: “Connexa is Aotearoa’s first independent mobile towers business with a focus on investing in our country’s digital infrastructure to enable a more connected future. We currently operate over 1,200 mobile sites and have been commissioned by Spark to deliver New Zealand’s largest forward-committed new site build programme of over 670 sites over the next 10 years.
“With the addition of 2degrees’ mobile towers and the committed build to suit programme, we will be able to achieve greater operational efficiencies through increased infrastructure sharing, which means fewer unnecessary mobile tower builds in local communities and faster deployment of towers to improve network coverage and capacity across Aotearoa.
“Our model is to focus on serving our customers through a long-term approach to asset management, and increasing asset utilisation and performance, and we’re excited to bring that same approach to 2degrees’ mobile towers.”
Ontario Teachers’ will contribute all the additional equity capital required to the acquisition. Following completion of the acquisition, Ontario Teachers’ shareholding will increase to approximately 83% and Spark’s shareholding will reduce to approximately 17%.
Bruce Crane, Senior Managing Director and Head of Asia Pacific Infrastructure & Natural Resources at Ontario Teachers’ said: “This acquisition of high-quality digital infrastructure assets increases Connexa’s scale and capabilities, creating Aotearoa’s leading digital infrastructure platform. As a responsible and long-term investor in the region, we are committed to supporting Connexa as it significantly expands its mobile tower network in the years to come to meet the country’s growing mobile and data demand needs. We are also very pleased to have the opportunity to grow the strong relationship we have established with Spark and welcome 2degrees as a long-term partner for Connexa.
“We are excited to further grow our infrastructure portfolio in Asia-Pacific and specifically New Zealand which remains a key market for Ontario Teachers’ across multiple asset classes.”
In addition to Ontario Teachers’ acquisition of Spark’s tower assets, it has previously invested in Asia Pacific Healthcare Group, New Zealand’s leading pathology business, Lumino the Dentists (through Abano Healthcare), the country’s leader in dental care, and OTPPNZ, which operates 35,000 hectares of timberland in the Central North Island region.
Completion of the acquisition is subject to customary approvals from the Overseas Investment Office (OIO) and Commerce Commission and is anticipated to occur in mid-2023.
Notes to Editor:
1 Active assets are anything in the core of the network, as well as the radio equipment that creates the mobile network, including the antennas – and the connection of those antenna back to the core network. These leverage a network operator’s spectrum holdings, provide differentiated customer experiences, and support wireless broadband. Passive assets are the physical towers that support the active equipment, including standalone macro towers, rooftops, and lamppost towers. These are not considered important for competitive advantage.
2 Includes in-flight sites that will be on air at transaction completion.
Connexa is an independent mobile towers and digital infrastructure business that operates a nationwide portfolio of over 1200 mobile sites. Connexa is responsible for mobile build programmes that will enable a more connected future for Aotearoa New Zealand.
About Ontario Teachers'With offices in Hong Kong, London, Mumbai, San Francisco, Singapore and Toronto, our more than 400 investment professionals bring deep expertise in industries ranging from agriculture to artificial intelligence. We are a fully funded defined benefit pension plan and have earned an annual total-fund net return of 9.6% since the plan's founding in 1990. At Ontario Teachers', we don't just invest to make a return, we invest to shape a better future for the teachers we serve, the businesses we back, and the world we live in. For more information, visit otpp.com and follow us on Twitter @OtppInfo
Ontario Teachers' Pension Plan Board is a global investor with net assets of $242.5 billion as at June 30, 2022. We invest in more than 50 countries in a broad array of assets including public and private equities, fixed income, credit, commodities, natural resources, infrastructure, real estate and venture growth to deliver retirement income for 333,000 working members and pensioners.
Spark also put out a press release on this acquisition:
Connexa, the independent mobile towers business in which Spark New Zealand (“Spark”) is a shareholder, has today announced it has reached an agreement with 2degrees Mobile (“2degrees”), an entity owned by managed funds of Macquarie Asset Management and Aware Super, to acquire 2degrees’ passive mobile telecommunications tower assets.
Connexa is an independent mobile towers business that was formed following the sale of a 70% stake in Spark’s passive mobile infrastructure assets to the Ontario Teachers’ Pension Plan (Ontario Teachers’) in July 2022, with the transaction completing in October 2022.
The tower portfolio to be acquired by Connexa includes 1,124 mobile towers located across Aotearoa New Zealand. Under the terms of the deal, 2degrees has entered into a 20-year-agreement with Connexa (plus rights of renewal) to secure access to existing and new towers, with an additional tower build and co-location commitment of 450 sites over the next 10 years.
Spark will not contribute equity to the acquisition, which will result in its shareholding in Connexa being diluted from 30% to approximately 17% (of the resulting larger business) following completion of the acquisition. Ontario Teachers’ will provide funding for the deal and its shareholding will increase to approximately 83%. Spark will retain its existing governance rights including Board representation and benefits from the value accretive expansion of the business.
Spark CEO Jolie Hodson says, “We believe that the addition of 2degrees’ passive mobile tower assets into Connexa will deliver greater operational efficiencies that will support more infrastructure sharing, better network economics, and faster deployment of new digital infrastructure across Aotearoa.
“We are pleased to continue to be a shareholder in a larger, and even more efficient business, and we look forward to working in partnership with Connexa as it delivers our new site build programme of 670 sites over the next 10 years. We are also pleased to expand the strategic relationship we have with Ontario Teachers’, with this transaction reflective of the long term, collaborative partnership we established with our tower sale earlier in the year.”
Completion is subject to customary approvals from the Overseas Investment Office (OIO) and Commerce Commission and is anticipated to occur mid-2023.
Jarden has been appointed as financial advisor to Spark on the transaction. The Connexa release is included for reference (See Appendix A).
This acquisition of 2degrees Mobile (2degrees)'s tower assets is a fantastic deal for Connexa, a company which was formed following the sale of a 70% stake in Spark New Zealand’s (“Spark”) passive mobile tower infrastructure assets to Ontario Teachers’ in July 2022, with the transaction closing in October 2022.
As stated in the respective press releases, Ontario Teachers' will provide equity funding for the acquisition these tower assets and once the deal is complete, it will own 83% of Connexa and Spark's ownership will be diluted down to 17% from the current 30%.
However, Spark will retain its existing governance rights including Board representation and benefits from the value accretive expansion of the business.
Back in July, I covered how Ontario Teachers’ acquired a 70% interest in Spark New Zealand’s mobile towers business for NZ$900m (€548.5m).
You can read my coverage of that deal here where I noted:
I am providing you with this background to really appreciate the genesis of this deal and what led up to Ontario Teachers' being chosen as the third-party capital of choice to help Spark achieve greater focus, service innovation, and efficiency, reducing costs and increasing speed to market for these build program.
Massive infrastructure deals like this take time, they require relationships and there's no doubt that Spark chose the right partner and did its due diligence on OTPP before signing this agreement to sell 70% of TowerCo to it.
OTPP's Infrastructure and Natural Resources group led by Dale Burgess manages $36 billion in infrastructure ($26 billion) and natural resources ($10 billion) to provide steady inflation-linked cash flows over the long term.
Last year it announced plans to double its infrastructure investments within the next five years, mostly in core infrastructure (airports, toll roads, regulatory utilities and renewable power), and the Asia Pacific region was identified as an underrepresented portion of its overall infrastructure portfolio:"We have the desire to grow in that part of the world, we want to make sure that it's done in the right pace," Mr. Burgess said.
So, it is hardly surprising to see this agreement take place as Dale Burgess and his team are executing on their strategy, gaining more exposure to the Asia-Pacific region.
Also worth noting what Bruce Crane, Senior Managing Director and Head of Asia Pacific Infrastructure & Natural Resources at Ontario Teachers’ said concerning this deal:“The acquisition of a 70% stake in TowerCo is an ideal fit for our growing global portfolio of high-quality infrastructure assets. This investment builds on our long track record of investing in superior businesses in New Zealand and will draw on our deep experience investing in digital infrastructure businesses globally. We look forward to working with the Spark New Zealand team to build and grow a leading business that will enable New Zealanders’ continued access to critical telecommunications services to meet their growing mobile demand needs over the long-term.”
OTPP has been investing in Australia and New Zealand for a very long time (like the UK, both countries have strong rule of law and are open to foreign investors).
Digital infrastructure assets like tower assets are a hot commodity right now and it is evolving fast.
Back in September, Macquarie Australia put out a nice comment, Digital infrastructure: three waves, three opportunities:
As the rate of digitisation accelerates, digital infrastructure is becoming both more crucial to our economy and more complex in its nature. Artificial intelligence (AI), cloud computing and 5G networks are combining to change the frontiers of digitisation and redefine what constitutes digital infrastructure itself, says Macquarie Capital’s Head of Digital Networks and Data, Edward Burley.
“The mainstream investment community already has a relatively good understanding of now-traditional digital infrastructure assets such as data centres and fibre networks,” he says.
“However, the sheer scale of opportunities available in a 5G and AI-enabled world - which could include everything from low orbit satellite networks to ‘soft’ and social infrastructure - still isn’t fully appreciated."
The first wave, the internet and the cloud
Burley says that when many investors think of digital infrastructure, their minds still turn to the ‘hard’ traditional assets such as mobile towers, cables and wires. These, he explains, provided the initial means for digital disruption to occur by allowing the internet to develop and expand.
“With these types of traditional infrastructure assets, we’re looking at a long time frame that stretched back to as early as the 1970s for fibre and lasted up until the 2010s for 4G towers,” Burley says. “So, people have had time to understand how they work and the role they might play in a portfolio.”
While the hard assets of digital infrastructure are still necessary, Burley says that cloud computing and AI have combined to create a different-looking digital environment.
“It’s only in the last five years that we’ve seen cloud computing become mainstream and it has already transformed the front office functions - such as sales, invoicing, payments and even customer service - of most businesses, even the smallest ones.”
And yet, Burley believes that this trend still has a long way to go.
“We’re only about 20 per cent of the way there,” he says. “80 per cent of government and enterprise processes still need to be migrated. When this happens, it will create so much more data that needs to be transmitted, captured and stored.”
Burley says the sheer volume of data being created - and the infrastructure needed to support it - can be seen in the rapid growth of Asia’s data centres. In 2016, Asia had just 1/16th of the installed data centre base of the United States in term of megawatts. Now, just five years on, the data centre market is bigger than the US in terms of megawatt demand and the installed base of data centres is still catching up.
“We’re only really still at the start of the cloud revolution. The ongoing structural demand for new data centres and other critical digital infrastructure remains acute.”
5G and AI at a tipping point
Despite this, Burley believes that even more significant forces than cloud computing will drive digitisation in the next few years.
Chief among these will be the rise of 5G networks, which covered around 25 per cent of the world’s population at the end of 2021, but by 2027 they are expected to cover around 75 per cent.1"Digital networks will become so entrenched in our lives that the roughly 3.6 internet-connected devices per person globally2 is likely to rise to more than 20."
Head of Digital Networks and Data, Australia and New Zealand
Most of this growth is likely to come not in personal communications devices, such as mobile phones or computer-based traffic, as it has to date. Instead, it will almost certainly be the result of machine-to-machine (M2M) connections that form part of the internet of things (IoT). This will effectively digitise most processes in our lives and the economy more broadly, from smart home appliances (which automate things like ordering groceries online), to industrial-scale manufacturing.
Burley says that what is now making this possible is yet another technology – artificial intelligence (AI).
“AI allows devices to talk with each other and operate independently, further accelerating the rate of data creation,” Burley says. “This, in turn, will drive the need for more – and different forms of – digital infrastructure.”
New directions, new frontiers, new assets
As 5G and AI change the way we live, Burley says supply to regional and remote areas will begin to become an issue, just as it has for 3G and 4G networks. Here, he argues new technologies such as low earth orbit satellites and edge data centres are likely to play an important role.
“So far, telecommunications satellites have typically been geostationary, meaning they sit over one just part of the earth’s surface and need to be launched very high at great expense. But the commercialisation of space has made launching low earth orbit (LEO) satellites surprisingly cost-effective,” Burley says.
“These satellites sit between 200km and 2,000km above the earth’s surface and orbit the planet, and they’re already used by governments to perform tasks such as border patrol and domain awareness.”
“We’re likely to see a constellation of LEOs used to supplement 5G networks based on the ground, creating a new wave of potential digital infrastructure assets in space.”
‘Soft’ infrastructure assets on the rise
It’s not just new physical assets that Burley says are emerging. As data becomes more crucial to the way governments and individuals function, Burley says it is starting to contain value in its own right. Various levels of government recognise this and have recently started commercialising, in conjunction with private sector parties, important information registries traditionally owned by government, such as lands titles offices (in NSW and Victoria) and motor vehicle registries (Victoria introduced private sector capital to commercialise the Victorian motor vehicle registry in June of this year).
“These businesses aren’t like existing digital infrastructure assets insofar as their value isn’t in hard digital infrastructure such as a fibre network, mobile phone tower or data centre,” Burley explains. “But they still store and manage data required to facilitate core economic functions, such as the sale and transfer of houses and vehicles.”
“The perimeter of soft digital infrastructure is also likely to expand over time to include more data such as payment systems, credit bureaus, regulatory technology (RegTech) and even subscription-based businesses that automate government-mandated functions.”
“Each of these could be packaged and financed in a way that resembles any other infrastructure asset, with predictable long-term cash flows.”
Capital at the ready
Burley notes that, so far, private capital - especially pension funds - have been responsible for stepping up to fund much of the world’s future digital infrastructure requirements. However, those stepping in to capitalise on current opportunities will need to account for a more nuanced and complicated landscape.
“Fund managers will have to be mindful of the new political landscape in which digital infrastructure operates but they also have the opportunity to look beyond what’s traditionally been perceived as infrastructure to access new assets - both physical and non-physical.”
“If they can, he says, it will be private capital, more so than governments and corporations, who will play the pivotal role in standing up the infrastructure for the digital age.”
The good thing is Ontario Teachers' is investing in hard traditional digital infrastructure assets like mobile towers and new ventures, like their investment in Elon Musk's SpaceX threough their Teachers' Venture Growth platform.
But I like these traditional mobile tower assets deals because Canadian pension funds sign long-term deals and benefit from the long-term leases of the tower assets to the telcos as well as from the value accretive expansion of the business.
Lastly, I note a couple of corporate news events at OTPP.
First, Ontario Teachers’ just appointed Charley Butler as Chief Pension Officer:
Toronto, Canada -- Ontario Teachers' Pension Plan Board (Ontario Teachers') today announces the appointment of Charley Butler as Chief Pension Officer, effective January 1, 2023. Based in Toronto, Ms. Butler will become a member of Ontario Teachers’ Executive Team and report to Jo Taylor, President and Chief Executive Officer. Charley takes on this role from Tracy Abel, currently Chief Operations and Pension Officer, who will continue to be Chief Operations Officer and a member of the Executive Team.
“I am very pleased to welcome Charley to the Executive Team as Chief Pension Officer,” said Jo Taylor. “Charley has played a pivotal role in delivering service excellence to our 333,000 active and retired teachers, through a focus on self-funded growth, digital transformation and innovation. Under her strong leadership, we are well-positioned to further strengthen our mission to deliver outstanding service and retirement security for our members.”
Charley brings more than 20 years of experience in client services operational management, business transformation and strategy to her new role. She joined Ontario Teachers’ in 2015 to oversee all aspects of services delivered to our members. Charley holds an LLB from the University of East London, U.K. and an MBA from the University of Toronto, Rotman School of Management.
And Ontario Teachers’ also announced the appointment of Romeo Leemrijse as Executive Managing Director, Equities:
Toronto, Canada -- Ontario Teachers' Pension Plan Board (Ontario Teachers') announced the appointment of Romeo Leemrijse to the position of Executive Managing Director, Equities. Based in the Toronto office, Mr. Leemrijse will take on the role on January 1, 2023, and report to Chief Investment Officer Ziad Hindo. As a member of the Investment Executive Team, he will lead the Equities department, which delivers growth through private and public equities.
“I am pleased to welcome Romeo to our Investment Executive Team. Under his trusted leadership, Equities will play an important role deploying capital and continue to contribute significantly to our ability to create value for our members,” said Mr. Hindo.
Mr. Leemrijse brings more than 25 years of private equity and investment banking experience to the role. He first joined Ontario Teachers’ Private Capital team in 2006 and has worked on a number of significant transactions and portfolio companies including PODS, GFL, Dematic and GNC. In his role as Senior Managing Director & Global Group Sector Head, Private Capital, he oversees all direct investing in North America.
Mr. Leemrijse holds a Bachelor of Commerce from the University of Calgary, is a CFA Charterholder and holds the ICD.D certification from the Institute of Corporate Directors.
I congratulate both of them on their appointments and wish them much success in these important roles.
Romeo Leemrijse is taking over public and private equities and will be replacing Karen Frank who left the organization.
Below, take the time to learn why 2degrees Mobile didn't become New Zealand's fairest telco by being like the other guys.
Also, in this 2015 episode of RCR's Cell Tower News, host Joey Jackson talked with Alex Gellman, CEO and Co-Founder of Vertical Bridge, about the possibilities and pitfalls of tower leasing and ownership. Well worth listening to this but keep in mind, it's eight years old.