KKR targets booming French data market with Altice deal

The firm will open the ‘under-utilised’ portfolio of 10,000 telecom towers to third-parties as it moves to tap into the ‘fifth fastest-growing’ mobile data space in the world.

KKR bought just under half of a telecoms tower portfolio in France last week and is now targeting large, new customers in the country’s telecoms market, according to energy and infrastructure director Cristina Gonzalez.

The firm agreed to buy a 49.99 percent stake in more than 10,000 telecom towers owned and managed by the French company SFR, a subsidiary of Dutch telecom giant Altice. The deal creates a new company, SFR TowerCo, and values it at an enterprise value of around €3.6 billion. The latter represents a multiple of 18 times annual EBITDA of €200 million, according to a statement from Altice.

Gonzalez told Infrastructure Investor the portfolio is currently “under-utilised” because SFR is the only company using the towers. Bringing in third-party tenants, she said, is a “good source of value” for the business.

“In France, demand for data traffic is growing exponentially, and this requires strong infrastructure support,” she said. “Telecom operators are going to be demanding more infrastructure, and in this platform they’re going to find the perfect target to rent that space. The higher the focus is on third-party businesses and utilisation, the higher the value of the company.”

Gonzalez added KKR and SFR are looking to attract large customers in France’s telecoms market, such as Orange, Bouygues and Free.

Analytics firm tefficient said France recorded the fifth-biggest growth in data usage per SIM across the globe between full-year 2016 and the first half of 2017. The latter amounted to 71 percent versus the 205 percent recorded by market-leader India. “France stands out as it is the only country among the quickest-growth countries that can’t be said to be a developing market,” tefficient said.

The deal is expected to close by the end of this year and will effectively make SFR a tenant of the assets it used to own outright. The company said it will operate from the towers under a 20-year “master agreement” and has plans with KKR to develop 1,200 new sites over the next few years.

Along with SFR, Altice last week sold stakes in telecom assets in Portugal to Morgan Stanley Infrastructure Partners and local fund Horizon Equity Partners. That deal covered 2,961 towers and had an enterprise value of €660 million, equivalent to 18.9 times the portfolio’s 2017 EBITDA of €35 million.

Both sales are to help the company pay off debt, it said in a statement.

KKR invested in SFR using its global infrastructure funds platform. Gonzalez would not say which specific funds it used, but sources familiar with the deal told Infrastructure Investor a combination of Funds II and III was used. The firm is currently raising its third global infrastructure fund, which KKR executives said on an earnings call in May had collected $6 billion. Sources familiar with the fundraising told Infrastructure Investor the vehicle has a $7 billion hard-cap and is set for a final close soon. That fund’s predecessor, the $3.1 billion Global Infrastructure Investors II, is understood to be pretty much fully invested following the SFR deal.