Significant inflows from infrastructure funds have contributed to private market multiple expansion according to Jennifer Fritzsche, Managing Director of Wells Fargo Securities. Fritzsche said Infrastructure funds comprised 26 percent of fiber deal volume in 2018, up from five percent in 2016.
“These funds are underwriting to lower returns than traditional private equity (high single digit to low double digits), but with longer holding periods (5-10 years),” she said.
“Fiber is also being tracked more closely by pension fund investors, who are likely to underwrite even lower returns given their more attractive costs of capital.”
“There is an emerging shift from expansion through acquisition to organically building fiber routes given where acquisition multiples have trended,” she said. “For example, Everstream announced it will invest $300MM to build out new markets in the Midwest; FirstLight is planning to double its 2018 build to 2K+ route miles in 2019. While M&A activity should remain active in 2019, we expect fewer total transactions (vs the ~35 in 2018) as these “fiber orphans” expand their network reach.”
To Fritzsche, small cells provide the real momentum with all four major carriers showing urgency around the small cell push.
“One contact believes VZ ultimately needs small cell antennas in the densest U.S. markets every 150 meters,” she said. “For T, the message is they will ultimately need a small cell on every other floor of large skyscrapers. In New York City alone, our sources believe small cell nodes will grow to 100K+ (from 8K today) in the next 6 years.”
February 5, 2019