Source: The Financial Review

HRL Morrison & Co, the investment group that has made a $3 billion bid for broadband services company Uniti, has described the digital industry as a “critical building block of society” as it snaps up more assets.

Morrison & Co’s chief investment officer, William Smales, told investors in Infratil – the firm’s listed infrastructure group – last month that digital services were becoming essential to every facet of modern life, from entertainment to banking to transport.

Assets targeted by Infratil include data centres, integrated telecommunications companies, mobile towers, wireline networks, subsea cables, satellites and small cell networks.

Mr Smales argued that demand for data networks would continue to increase as organisations shift information off worksites onto cloud infrastructure, partially for security but also so that they can share information easily, and consumers use more technology in their daily life.

Data centres are considered to be valuable assets because they typically have long-term contracts with customers and are expensive to set up.

If the Uniti takeover bid is successful, it will strengthen Morrison & Co’s foothold in digital infrastructure. The investment group has already acquired a 49.9 per cent stake in Vodafone New Zealand, as well as a 49 per cent share of Amplitel, the rebranded Telstra InfraCo Towers business. Amplitel is the biggest mobile tower provider in Australia with some 8200 towers.

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It also owns most of Canberra-headquartered CDC Data Centres, has a 40 per cent stake in the UK’s Kao Data Centres and has taken a 72.5 per cent interest in the Netherlands’ Fore Freedom, which develops and operates fibre-to-the-premises networks.

Other big investment funds like QIC are also prioritising investment in digital infrastructure, with the Queensland investment group singling out “real assets” as increasingly important as inflation rises.

The cash flows of infrastructure assets typically improve as inflation increases because regulated asset operating arrangements usually allow for higher returns when consumer price indexes go up.

Australia’s NAB has estimated that global private investment in digital infrastructure and telecoms has grown rapidly from less than $US1 billion in 2010 to more than $US90 billion ($118 billion) a year.

Meanwhile, Macquarie Capital, which is also making substantial investments in data centre groups like AirTrunk, has argued that infrastructure is increasingly being considered as an asset that enables the movement of data, not just the movement of people.

Uniti will hold exclusive talks with Morrison & Co until late April after the investment group made an indicative takeover offer of $4.50 in cash per share.

The takeover target said on Tuesday that shareholders should not take any action on the proposal and that it would update investors “in due course”.

Analysts had been optimistic about Uniti’s financial outlook before the takeover bid was announced on Tuesday. Bell Potter released a research note on Uniti on Monday with a 12-month price target of $4.50 and a buy recommendation, but has not forecast any dividend payments over the next three years.

Bell Potter analyst Chris Savage said Uniti aimed to provide an alternative to the NBN but cautioned it is facing competition from alternative suppliers of broadband internet connectivity services, including resellers of NBN and mobile operators delivering 4G cellular services and eventually 5G services.