Telekom is the main winner in the purchase of Brookfield towers

Infrastructure funds continue to party on mergers and acquisitions, despite fears of recession and market volatility. The Canadian group Brookfield Asset Management and the private equity DigitalBridge have won the deal to buy Deutsche Telekom’s tower business in Germany. The €17.5bn valuation looks lofty, and underscores the strength sellers have when dealing with cash-rich funds.

Deutsche Telekom announced Thursday that it will sell a 51% stake in the business, which owns 40,000 towers in Germany and Austria, to a consortium led by Brookfield. The North American group had submitted an offer together with the tower specialist Cellnex Telecom, which was offering its experience. But in the end Deutsche Telekom preferred the safety of a cash deal, and Cellnex, which had offered to pay in part with its own shares, backed out. The German group will use the €10.7 billion net from the sale to reduce debt and increase its stake in T-Mobile US.

Success comes at a cost to Brookfield. The €17.5bn valuation, including debt, is equivalent to 27 times last year’s EBITDA of the towers after lease payments. That is in line with the average for corporate operations in Europe in 2021, according to our calculations. And that despite the fact that stock market valuations have fallen since then. Including debt, Cellnex is now worth some 23 times last year’s EBITDA, up from 27 times at the beginning of the year, according to Refinitiv data.

The lure of cell towers is easy to see. They offer stable cash flows from high-quality mobile operators, increasing over time in line with inflation. And Brookfield has been able to negotiate a 30-year lease with Deutsche Telekom, longer than in some recent deals. However, towers still carry risks: they require investment and may suffer from competition from other technologies or concentration among tenants.

Still, infrastructure investors don’t have many options. They have about $313 billion of capital to start up, according to Preqin. And there are still more funds on the way: Global Infrastructure Partners (GIP) intends to create a fund of 25,000 million dollars, for example. For Brookfield, that avalanche of money is an insurance policy: there may be plenty of buyers for a stake in the business if it wants to sell, as long as the infrastructure party goes ahead.