Ardian’s Michael Obhof: Mexico’s growing middle class will require more mobile devices and connectivity

Ardian recently announced it's buying a 50% stake in MXT Holdings.

The growing middle class in Mexico and the country’s proximity to the US are driving demand for internet connectivity – and drawing interest in its telecom market from the private equity industry.

Earlier in July, Paris-based Ardian announced a 50 percent stake in MXT Holdings. Ardian is teaming up with MXT existing shareholder Mexico Infrastructure Partners, which will retain the other 50 percent. The deal is expected to close in the second half of the year. To learn more, PE Hub spoke with Ardian senior managing director Michael Obhof.

MXT develops, acquires, owns and operates neutral-host communication infrastructure assets across Mexico, offering wireless and fiber services.

Following major stress in the global supply chain that was exposed during the pandemic, Mexico has landed itself as a preferred destination by many manufacturers in the US who are looking forward to smoothing their sourcing – and bringing it closer to home.

“Mexico and the US are pretty close, and what we are starting to see is the concept of nearshoring,” Obhof said. For many manufacturers, Mexico’s proximity to the US helps reduce transportation costs and shipping time.

Michael Obhof, Ardian

“Increased economic activity drives demand for connectivity,” he added, noting that this economic activity will lead to another opportunity for MXT as the growing middle class in Mexico “will require more mobile devices and connectivity.”

With a population of 130 million, and being the second largest economy in Latin America, the Mexican market offers enormous opportunity for telecommunications growth, Obhof said. He noted that in terms of mobile coverage and connectivity on the fiber side, the country has lagged some of its peers in the Organization for Economic Cooperation and Development.

As the country tries to catch up, “especially in rural areas where this administration in Mexico is prioritizing,” there will be more demand for MXT’s services, Obhof said. Mexico is a little bit behind the US in small cells deployment, 5G rollout and others, and this investment will increase the pace of development, he added.

Holding strong

But even when Mexico is also fighting inflation by aggressively raising interest rates, Obhof believes the Mexican economy is resilient and will hold on to growth that will keep demand for connectivity sustained in the long term.

“They have been more proactive than we have seen in the US or Western Europe in terms of interest rate hikes in response to inflation,” he said. “The economy is continuing to hold strong.”

Turning to growth, MXT has identified new projects that will enhance its organic strategies, Obhof said. There are also opportunities for M&A in different parts of the business. “Especially on the tower side, there’s a bit more consolidation that needs to happen in the market,” he said.

Ardian’s investment will be used by MXT to support a recently completed asset swap for about 200 towers and about 1,800 km of metro fiber from Telefónica, as well as strategic acquisitions which will materially increase MXT’s portfolio.

The deal will be made out of the Ardian Americas Infrastructure Fund (AAIF) V.

In its portfolio, the firm has other telecommunication companies across the world including Unison, which is a buyer and manager of telecom site properties in the US. Ardian also has investments in Europe, including Adamo in Spain, Míla in Iceland and INWIT in Italy.

“Although this is the first investment for Ardian in Mexico, I would say it’s in a sector that we know well,” Obhof said.

To strengthen the investment, Ardian will follow its strategy of tapping experienced people who specialize in specific areas, including operating partners and senior advisers. “These are people that have spent 30 or 40 years in the sector, in the region, and they understand the businesses,” he added.