“IHS follows the trend of Nigerian founded companies (Jumia, Olam, Interswitch, iRoko etc) that have scaled globally and opted for IPO offerings in foreign markets”.
African mast operating giant, IHS Towers has today listed on the New York Stock Exchange (NYSE). The company last week filed documents with the US Security and Exchange Commission (SEC) as regards the planned IPO (Initial Public Offering). The company had earlier planned an IPO in 2018, but postponed it due to unfavourable market conditions. According to filings, the company is seeking a valuation of around US$7 billion, to become the most valuable African listed technology company, with net IPO proceeds of around half a billion dollars.
Compared to its peers, IHS Towers has a robust financial and operational superiority. It generated over US$1.5bn in revenue and US$943mn in Adjusted EBITDA in the 12 months to Q2’21. At the company’s August 2021 investor presentation, EBITDA margin was reported at 68.4%, which is very attractive and shows that the company has a tight rein over its operating costs.
At the August presentation, IHS Towers also revealed that it had a tenancy ratio of 1.51x. (Tenancy ratio are expressed as a fraction of total number of operators sharing towers/total number of sites present). This figure was diluted to 1.51x (from 1.54x), after IHS completed a number of site acquisition in a number of new markets, earlier in the year.
Humble Nigerian Beginnings
Founded in Nigeria in 2001 by Sam Darwish, IHS Towers commenced operations as a tower builder, expanding into tower maintenance for MNOs (Mobile Network Operators) and later co-location services from around 2009.
In 2010, it acquired 800 Visafone sites, and then gained significant scale in Nigeria with a 9,000 site tower deal with MTN (with IHS and MTN creating a joint venture into which the assets were placed) and two deals with Etisalat (acquiring 2,136 towers followed by a 555-tower deal).
In 2016, the company operated towers reached 21,132. It later acquired 1,211 tower sites from Helios Towers Nigeria(its closest competitor in Nigeria). Over its operational history, the company has expanded into three continents: Africa, Asia and South America.
In Africa, it has active operations in Cote d’Ivoire, Cameroon, Zambia and Rwanda. In South America, it is active in Brazil, Colombia, and Peru and Kuwait and Saudi Arabia in Asia. Its towers totalled over 30,000 as of Q2 2021 and revenues of US$402mn. IHS Towers is also the fourth largest multi-market independent towerco in the world.
IPO to reward long term investors
A number of investors have stakes in IHS Towers. One of them is MTN, which owns 29% of the company’s shares outstanding. Other investors include Goldman Sachs and French private equity investor Wendel. Recently, MTN disclosed to its investors that it was looking to reduce its stake in IHS Towers (valued at around US$2 billion) and could sell/lease thousands of its own mobile towers in South Africa, to generate cash for scaling its primary business.
Elsewhere, analyst expect IHS to use the proceeds to further expand into new markets in Europe and other opportunities in Africa and Asia as MNOs shift focus to monetising their tower assets and/or sell to specialist tower companies (like IHS Towers), who are looking to service the increasing demand for tower infrastructure.
Fillings reveal that IHS is seeking a price of between $21 to $24 per share, with the group offering 18 million shares of its own in addition to 4.5 million offered by certain selling shareholders. At a middle of the offering price range, total net proceeds could reach US$380 million. The company shares opened trading at $21/share and at a valuation of US$6.95 billion.
For this transaction, Goldman Sachs, J.P. Morgan and Citigroup are acting as joint lead book-runners while RBC Capital Markets, Barclays Capital and Absa Bank are acting as joint book-running managers for the proposed offering.
Succeed in Nigeria, list overseas
This IPO by IHS follows the trend of Nigerian founded companies that have scaled globally and disclosed that they would offer IPOs in foreign markets. Notable companies include Jumia (concluded in 2019), Olam, Interswitch, and iRoko amongst others. This trend is not peculiar to Nigeria, with many scaled businesses from other African countries also indicating interest in foreign market listing over African stock markets. In 2019, African telco, Airtel Africa had a dual listing on the Nigerian Exchange Limited (NGX) and the London Stock Exchange (LSE).
The choice for foreign markets listing over local markets is not farfetched. Given that an IPO is an exit opportunity for old shareholders, investors only want to IPO in a market that offer the maximum possible price on the company shares, and the Nigerian local bourse may struggle to fulfil this criterion. This is because Nigeria is currently characterised by a severe case of weak economic growth, low consumer purchasing power and poor liquidity of the local bourse. Therefore, IPOs on the NGX will not deliver optimum returns to companies. This explains why MTN Nigeria opted for a listing by introduction (over an IPO) when the Nigerian government compelled the company to list on the NGX.
African technology and telecommunications. A macro bet
Particularly over the last two decades, the African technology and telecommunications (telco) industries have been on the rise, driven by attractive fundamentals across the continent. For the African technology industry, drivers of growth include:
- Africa’s fast growing internet economy
- Growth of tech hubs and talent training pools
- Entrepreneurs’ focus on niche markets
- Targeting neglected and under-served customer segments
- Funding support from local & international angel investors, venture capital, and private equity
- Strategic partnerships with traditional businesses amongst others
The telco industry which kicked off in Nigeria in the early 2000s, has over the past three years driven Nigeria’s economic growth on the back of the expansion of the internet economy.
That said, the sector is still primed for further growth. Africa’s vast population is still young as 60% of people on the continent are below the age of 25. As the population segment grows older, the internet economy is set to expand further.
Also, increased urbanisation and stronger growth in people’s income level will create new challenges that technology will help solve in a super-efficient manner. Nonetheless, challenges such as low broadband penetration, high poverty levels and clueless political leadership on the continent are constraints to faster growth of the industry.
Tech companies are fulfilling real needs and are making decent earnings while doing so. An improvement in economic policy and management will further boost demand, similar to the commodities-fuelled boom in the Africa Rising period. But this time driven by more durable factors.
