Communication towers operator Arqiva has confirmed plans to float on the London Main Market in what will be the UK’s largest IPO (initial public offering) so far this year.

The group is aiming to raise £1.5bn from investors in return for a rough 25% stake in a business that will command a £6bn enterprise value, including debt. The equity component – namely the market cap of the business – is expected to be valued in the region of £4bn.

The company is expected to go into the FTSE 100 soon after joining the stock market in November.

It has a fast growing mobile mast business and will pay dividends; we’ve heard talk of a 4% yield in time.

Yet many investors will be concerned about large debt levels, even after restructuring, and the future of its broadcast arm given that an increasing amount of audio and video is consumed over the internet.

Keeping the UK connected

Arqiva is a major owner of communications infrastructure in the UK with roots that go back to the BBC’s first radio and television broadcasts in the 1920s and 1930s.

The Hampshire-based company runs around 1,500 terrestrial TV and radio transmission and broadcasting sites, including Emley Moor, Britain’s largest free standing structure at 330m tall.

Arqiva also operates satellite uplink/downlink stations, about 8,000 mobile phone towers plus smart metering and low-powered wide area networks. It also has an exclusive agreement to install superfast 5G mobile kit onto 350,000 UK lamp posts.

The BBC, ITV (ITV) and Sky (SKY) are all customers, as are the UK’s major mobile networks, such as Vodafone (VOD), O2, BT-EE and Three.

Heavy financing

For the year to 30 June 2017, Arqiva reported revenues up 6.6% to £944m, or 9% higher excluding disposals.

Its main divisions; Terrestrial Broadcast (48% of revenue) and Telecoms (37% of revenue), grew sales by 6.3% and 10% respectively.

The company reported earnings before interest, tax, depreciation and amortisation (EBITDA) 10% higher at £467m, with operating cash flow of £438m.

But hefty interest payments of £237m, finance charges of £161m and other cash expenses swallowed up all of that cash flow. Net debt increased from £4.29bn to £5.18bn.

Plan B: Stock market float

Efforts failed earlier this year to sell the company, according to reports, hence why it is now going down the stock market route.

Arqiva is currently majority-owned by Canada Pension Plan Investment Board (48%) and Australian investment bank Macquarie (25%).

The primary objective of the IPO is to tidy up a balance sheet weighed down by debt, shareholder loan notes and interest rate swaps.

The proceeds will be used to clean up its books, converting existing shareholder loans to equity, pay down some debt and cutting its interest bill by £155m a year.

Arqiva says it will pay £195m worth of dividends in the current financial year. It also says capital expenditure will be reduced from 2018. (SF)

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