The vast number of players coupled with loads of savvy Wall Street money has set the stage for mass consolidation within the tower industry.
The rate of acquisitions has moved quickly within the last year, and industry executives and analysts say only a handful will remain when the dust settles.
“There is a fair amount of buzz out there,” said Rich Berliner, president and chief executive officer of Berliner Communications Inc., an engineering, site acquisition, project management and construction company. “Those of us out there are talking to everyone and anyone. The smart companies are looking at deals that make strategic sense for them.”
“People are making lots of money. Some of the little guys that have been bought out know what they have in their hand, and they’re getting the maximum dollar typically,” said William Sales, vice president of marketing and sales with FWT Inc., a tower construction company.
Virtually all facets of the tower business-ranging from construction to leasing of towers-will not go away any time soon. The advent of personal communications services carriers in the United States and extreme growth of wireless services internationally guarantees booming business for years to come, say industry executives. As a result, the business has become crowded with new players.
“So many people have thrown their hats in the ring,” said Sales. “There is a large percent of offers to do projects. That’s driving consolidation in order to build up scale.”
Being able to approach one tower company for all of their tower needs is what carriers want, say executives. This is sending tower companies running to acquire the expertise they need for certain areas.
“We try to bundle service as much as possible,” said Berliner. “We’ve identified a number of companies we are interested in buying. The key element will be capacity.”
And Wall Street has no problem financing the deals.
“The money chasing our deals is savvy,” said Berliner. “Wall Streeters know the kind of construction that has to go on out there … It appears we’ve got 20 to 30 years of buildout of these systems.”
Mark Ein, a principal with The Carlyle Group, a Washington, D.C.-based private equity firm with $30 billion in capital, said consolidation is attractive to investors because it gives companies diversity of geography, customer base and types of towers. “A broader geographical footprint raises capital, and it’s cheaper to negotiate with customers when you’re bigger. It’s not like other industries where there is great cost savings in consolidation. But you spread the risk over a more diverse base.” he said.
Other companies also are leasing towers and space to carriers that don’t want to own the infrastructure because of the large costs involved. Most carriers collocate on sites, allowing leasing companies to collect rent from more than one carrier. A wave of activity between carriers and tower-management firms appears to be developing, signaling a growing trend toward carriers selling off their tower assets in purchase/leaseback arrangements. Wall Street is beginning to understand the recurring revenue generated from these deals, said Ein.
“On an individual tower level, it is about the perfect economics of investment you are going to find,” said Ein. “You can buy them at attractive multiples with long-term leases from extremely credit-worthy companies.”
“It’s a real-estate play more than anything else,” said Ron Gibbs, president of Lodestar Towers Inc. “You lease capacity for the long-term to all wireless technologies. Basically it’s a cash-flow business. One leads to the other, and Wall Street smells a good opportunity. “
American Tower Corp., considered the largest owner and operator of wireless communications sites in the United States, has been one of the most active consolidators in the industry. The company operates more than 1,800 towers in 44 states and the District of Columbia. It says it has about 220 construction projects in progress. In five to seven years, American Tower expects to have 10,000 towers total.
