It is the end of the 1990s. Big developments are taking place in the world of wireless telecommunications. Mobile telephony is booming, but broadcast media (TV and radio) is also going through an intense period of change, above all with the prospect of digital terrestrial on the horizon. Every frequency used, whether for mobile telephony or broadcast, requires an output point, tower or pylon.
by Alessandro Falciai, Founder Millenium Partecipazioni S.r.l.
Towers are profitable only if their services are rented out to those who need them, whereas they remain purely a cost if used solely by the owner of the TV or radio company that had them built. Basically, offering them on the market leads to higher margins, and this is where profits are generated. This is an entrepreneurial intuition. However, together with this vision comes an objective difficulty. The tower business is typical of infrastructure businesses and is therefore capital-intensive and developing it with limited resources should not be taken for granted.
Alessandro Falciai has a very clear project in mind and tries out the market route. The year 2000 sees the creation of DMT (Digital Multimedia Technologies) which takes over a (structurally loss-making) branch of Mediaset, complete with around 100 employees. The problem, however, is financial as well as cultural due to the capital-intensive nature of the infrastructure. That is to say, it requires significant resources, yet the credit system, in common with the majority of businesses in the sector, is not able to understand the business that is just around the corner. The capital-intensive business starts off “piggy-backing” on the technology business which is based on the selling of transmitters and cell towers for the new digital terrestrial technology. This business sector is taking off in this period, and it is a business that basically requires only the financing of its working capital to develop, making it much easier to self-finance. With the first cash flows that arise from this technology business, it is possible to finance the first investments in towers. After the first year of operations and with the first results available, the banking system manages to provide the first line of financing. From this point on, the structure becomes self-financing.
In 2004, Digital Multimedia Technologies (DMT) is listed with the issue of new stocks that are dedicated exclusively to development, and after two years it achieves a market capitalization of €1Bn. Stock price goes from €21 at issue to €77 in 2006 (the all-time high, which is unbeaten to this day). DMT is the only tower operator to be listed on the Stock Market at a European level. In Europe, there are one or two operators per country, whereas in the USA there are four or five, all Stock Market-listed. In addition to the mobile telephone operators and radio, the major broadcasters such as Rai, Mediaset and Telemontecarlo become clients. DMT quickly becomes the main player in Italy. At that moment its limit is its size – it is a whale in a bathtub, not only from the point of view of skills and competences but also for its financial resources. This is when offers come in to take over the towers of the other players, Rai and Mediaset, followed by those of Wind, H3G and Telecom. In 2008 with Wind (project Eiffel), negotiations are nearing successful completion given that DMT is by now dealing exclusively with the purchase of a consignment of around 10,000 towers. Unfortunately, that autumn brings the international crisis that is triggered by the subprime mortgage crisis, followed by the crash of Lehman Brothers and the subsequent market crash, all of which leads to the banks fleeing en masse from projects that are considered to be risky, and so project Eiffel flounders.
“Strong domestically and aggressive abroad” had been the ultimate goal. However, this strategy, which foresees development into Europe as well, cannot proceed without a more solid base in Italy. Courage, vision and realism are fundamental skills in leadership. It is at this moment that Mr. Falciai, armed with a strong dose of realism, decides to dilute his stake in DMT, seeing no possibilities for growth in the Italian market. He has always thought that companies deserve to grow regardless of who created them because the number one value of every company is its social value. Many Italian entrepreneurs prefer to have a smaller company that is theirs and theirs alone and that they have control of, rather than allowing their company to grow. However, as can be seen in the crisis we are going through in these years, it is vitally important that Italian companies reach a certain size. The solidity of the industrial fabric of our country depends on it.
In 2011 DMT is merged with the facility that controls Mediaset’s towers. The group implicitly proves Mr. Falciai and his vision right. After 11 years everyone understands what he has always maintained – that towers are important business and that infrastructure should be shared in order to create value. Mr. Falciai thus becomes the second-largest shareholder of the resulting large company, EI Towers. However, achieving this aim is not easy due to the prevailing situation.
In 2011, Consob and Borsa Italiana introduce the so-called Whitewash, a mechanism to “sterilize” the stocks of controlling shareholders on certain motions during shareholder meetings which could lead to conflicts. To complete the operation, however, it is necessary to convince the other shareholders of the merits of the merger project. This is the first time that the whitewash mechanism has been applied in Italy, and it is autumn 2011, in the middle of the spread crisis. Italy, its government and the Prime Minister are facing an unprecedented financial and reputational crisis. Italy’s image collapses at the very moment in which DMT’s shareholders, largely from the USA, are being persuaded that merging with a company that is the property of the Berlusconi family represents a great opportunity. The going is difficult, even for a proud Italian, and the situation is not without intimations of skepticism or provocative sarcasm from certain quarters. In the end, however, the operation succeeds with 98% of the minority shareholders in favor.
The quality and potential of the industrial project are widely demonstrated.
Among the relevant experiences of these years are the more than 50 roadshows and over 500 one-to-one meetings which have been carried out with a level of insight and respect from the financial markets that it is difficult to find in Italian business. Suffice it to say that more than 70% of the free float was in the USA and UK and that these, therefore, were DMT’s reference markets. However, the key to this operation lies in its timing. It is important to be there at the right time, neither too late nor too early. The case of the tower business is proof of this: at the end of the 1990s, few are in a position to understand the imminent revolution of digital terrestrial and the potential of infrastructure such as towers that is vital nowadays. They were in front of everyone’s eyes, yet nobody appreciated their potential. Mr. Falciai has always been convinced of the fact that “nobody today is ready to give up having access to information at all times and in all places”, and tower infrastructure is unique in its ability to meet the ever-increasing requirements that arise from this.