5G is on everyone’s mind, fueling acquisition activity in several sectors. Earlier this week, for example, the world’s largest wireless tower operator, American Tower (NYSE:AMT), announced the purchase of publicly traded data center REIT (real estate investment trust) Coresite Realty (NYSE:COR) for $7.4 billion. The megadeal underscores the fast-moving consolidation of wireless companies ahead of a new generation of 5G and fiber networks.
American Tower – The Number One Wireless Tower Operator
American Tower erects cell towers and also provides all services related to the towers, such as care and maintenance. The company’s customers are primarily the major U.S. telecommunications companies (AT&T, Verizon, Sprint).
Unlike these network providers, which are active in the retail business, American Tower’s business is not very competitive. In addition to the stable U.S. market, American Tower benefits from the expansion of mobile networks in many emerging markets like India, where it has a substantial presence.
Coresite Valuation Exceeds $10 Billion Mark Including Debt
Now American Tower wants to swallow Coresite Realty for $7.4 billion, or $170 per share, to expand its business. Including debt, Coresite is valued at about $10.1 billion. That represents only a minimal 2% price premium to the closing price before the acquisition announcement.
However, Coresite Reality’s share price has already risen sharply by 37% this year. The deal should be complete by the end of the year or shortly thereafter.
Data Centers Gain Importance
Coresite Realty Corporation is a real estate investment trust (REIT). The company is engaged in the ownership, acquisition, construction and operation of data centers.
The company’s real estate portfolio includes approximately 25 operating data centers, office and commercial space, and several development projects. In total, the company has 2.8 million rentable square feet in its data centers. In addition, the company has a strong development pipeline.
At last count, Coresite Realty served more than 1,370 customers, including global enterprises, mobile network operators and cloud service providers. In the third quarter, the group reported annualized revenue of $655 million. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) were $343 million.
Coresite Realty on a Growth Path
Coresite has averaged double-digit annual revenue growth over the past five years. Following the acquisition, American Tower plans to further build on Coresite’s attractive development pipeline in the U.S. while exploring the potential for international expansion in the data center space.
With the deal, American Tower aims to create an integrated data infrastructure giant. This positions American Tower to become a leading provider of 5G infrastructure.
Second Mega Acquisition in a Year
For American Tower, the Coresite deal is its second giant gulp from the bottle. At the beginning of the year, the group acquired around 30,700 transmission towers from Telefonica in Germany, Spain, Brazil, Peru, Chile and Argentina for a total of 7.7 billion euros.
In the future, Telefonica will lease the cell towers sold to American Tower. The rich proceeds from the sale at Telefonica are thus offset by rental income at American Towers, which can be planned well in the long term.