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UK’s leading towerco Arqiva is up for sale; Keysight buys Ixia to bolster telecoms testing business

UK cell tower and TV mast operator Arqiva has been put up for sale with an optimistic price tag of between £5bn and £6bn, even though its two core areas of business have question marks hovering over them.

Any mobile tower company taking a long hard look at 5G has to decide whether it can extend its model into small cells. These will be an increasingly large percentage of mobile roll-out, putting pressure on the macro tower business, but they require significant changes to the traditional infrastructure business model – different payback cycles; a low price/high volume asset base; and the likely requirement, in some markets, to support active as well as passive equipment.

Some towercos, like Crown Castle in the US, have embraced the challenge wholeheartedly, but larger numbers remain hesitant at the thought of cutting deals with owners of street furniture such as street lights, rather than building brand new towers.

Indeed, Arqiva has had some ventures into small cells and WiFi, but with limited success (it recently sold its WiFi sites business). In its core business, it is a dominant force in the UK, but its core business is hardly growing. It owns all the digital terrestrial TV masts in the country, but there are long term doubts over the future of linear TV. A forecast by Wireless Watch’s sister service, Faultline, which analyzes digital video trends on a weekly basis (www.rethinkresearch.biz/faultline) predicts that 50% of linear TV delivery will be over-the-top by 2018. And more and more TV stations are indeed resorting to OTT delivery rather than spending the £10m a year that Arqiva asks for an annual broadcast channel fee.

Arqiva’s owners are two conservative institutions, the Australian investment bank Macquarie and the Canada Pension Plan Investment Board, which opt for businesses with guaranteed high returns and low risks.  They have decided to throw in the towel now, in the face of such significant changes both in the mobile and TV markets, and have put the firm on the market.

Macquarie bought the broadcast business of what is today Virgin Media in 2004, paying £1.27bn; and in 2005 it acquired BBC Broadcast for £166m. Then in 2007 it acquired  Crown Castle’s UK tower and broadcast properties, National Grid Wireless, for £2.5bn. This entity ran the biggest wireless infrastructure network and ended up managing all six DVB-T digital TV multiplexes. Macquarie later shared the load with its Canadian co-investor.

In all, it paid just under £4bn, and arguably, Arqiva has grown as digital TV added multiplexes – it only inherited two and bid and built the others – but has also shrunk, in that the advertising on those multiplexes are about to slide into oblivion as programmatic advertising turns OTT video into a gold mine at the expense of broadcast ads, from 2017 onwards.

The truth is that the strong pound gives those who show their investments in Australian or Canadian dollars an asset on their books which appears to be declining rapidly now, so there is also a desire to get out before the currency exchange devalues their property even further.

Expect more deals like this, all over Europe, but not just because of currency, but also because of the fundamentals of technology change. France’Stdf, in particular, could become vulnerable.

And expect Arqiva to be acquired by a UK-based business, which reports in sterling, or a Chinese one, with that country loving long term infrastructure investments right now. Private equity would usually pile in, but perhaps will be deterred by the currency situation right now. Arqiva has around £3bn in debt which will have to be factored in and it is this which prevented the more logical UK IPO.

Keysight buys Ixia to bolster telecoms testing business

The mobile test and measurement industry usually sees a big uptick from a new generation of technology, since its players lead the way in helping operators assess the new platforms. However, there is considerable consolidation going on in the sector, and the latest deal is for Keysight to buy Ixia.

Keysight, which spun out of Agilent in 2014, will pay $1.6bn in cash for Ixia. The latter itself acquired a product line, the N2X, from Agilent, back in 2009. It is a telecoms specialist and so will boost that side of the far more generalized Keysight’s business. Keysight also acquired a specialized wireless testing firm, Anite, in 2015.

The combined portfolio of the two firms will cover testing from the edge of the network in devices and the IoT, to the IP core and cloud data center.

Keysight’s CEO Ron Nersesian said in a statement: “The combination creates a powerful innovation engine to fuel growth, expands our software-centric solutions and builds new opportunities through sales and technology leverage … Together, we will provide leading edge solutions that address the fastest growing communications and networking trends including 5G, IoT, visibility, security and application performance.”

Ixia’s products will “extend Keysight’s position in wireless communications and create a unique combination of Layer 1 through 7 end-to-end solutions that address fast growing segments of the 5G communications design and test ecosystem,” added the company.

There has been speculation about an Ixia takeover for some weeks, with Viavi and EXFO both rumoured to be interested.

The board of directors of both companies have unanimously approved the transaction, which is anticipated to close no later than the end of October 2017 subject to regulatory approval. The deal represents a 45% premium on Ixia’s share price on December 1 2016, when reports emerged that it was looking for a buyer.

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