Morningstar | American Tower Increases Footprint in Africa With Eaton Towers Acquisition
Consistent with its strategy to participate in emerging-market wireless network build-outs throughout the world, American Tower announced an agreement to acquire Eaton Towers and its 5,500 wireless towers in five African markets, adding to the company's portfolio in Ghana, Uganda, and Kenya and bringing new markets in Burkina Faso and Niger. Management expects the deal to close by the end of 2019.American Tower is paying $1.85 billion and projects the tower portfolio to generate $165 million in cash gross profit in the first year (based on current exchange rates). With the forecast implying a 9% cash gross margin yield, we see this as a fair price in an environment that is often demanding overly expensive midteens multiples. However, with each towers initially generating almost $4,000 monthly (based on management's expectation for $260 million in tower revenue in the first year), we infer that this is a mature portfolio that probably has less opportunity to ramp up profits. The acquisition does not materially affect our $160 fair value estimate or cause us to reassess our narrow moat rating.
We like management's strategy of global diversification, which leaves the firm less beholden to swings in the mature U.S. market (despite current U.S. tailwinds). In addition, we believe many of American Tower's international markets are still in the earlier stages of building 4G networks and increasing mobile data penetration, in many cases constituting residents' first access to personal broadband connections. We think the Eaton Towers portfolio neatly fits the vision and closes the gap between Africa and American Tower's bigger Indian and Latin American markets. With this acquisition increasing American Tower's EMEA tower portfolio by a third, we forecast Europe, the Middle East, and Africa to constitute 13% of total company revenue in 2020 (compared with 9% in 2018) versus 15% in India, 18% in Latin America, and just over 50% in the United States.
American Tower is a holding company. Through its subsidiaries, the company is a real estate investment trusts and an independent owner, operator and developer of multitenant communications real estate. The company's primary business is the leasing of space on communications sites to wireless service providers, radio and television broadcast companies, wireless data providers, government agencies and municipalities and tenants in a number of other industries. The company also provides tower-related services, including site acquisition, zoning and permitting and structural analysis, which primarily support the company's site leasing business, including the addition of new tenants and equipment on its sites.
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