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PCIA 2012: Positive financials spark M&A across tower space

ORLANDO, Fla. – The tower industry shares many similarities with its customer segment – wireless carriers – including the penchant for merger and acquisition activity. Recent history has seen a number of deals announced in the space, though the possibilities for more activity could be limited … at least domestically.

Speaking during a panel discussion at this week’s PCIA Wireless Infrastructure Show, executives from the nation’s four largest tower owners noted that strong balance sheets have enabled a recent rash of M&A activity, though future moves might be more challenging. Late last week, Crown Castle scooped up a prize in more than 7,000 tower sites from T-Mobile USA, which cost the company $2.4 billion. While some noted that sum was “princely,” Crown Castle was quick to note that the upside made the valuation well funded. That amount was seen by some as being at the high end when compared with say the $670 million SBA spent on 3,300 towers from Sprint Nextel back in 2008, but Crown Castle remained bullish on its prospects.

Crown Castle President and CEO Ben Moreland explained in an interview with RCR Wireless News that the deal worked out to about $335,000 per site, which is about the going rate for a build-to-suit site. With an average of 1.5 tenants per site, including T-Mobile USA as an anchor, Moreland noted there was significant room to add more tenants per site and reap greater financial rewards.

“One of the metrics that we think of is that we added 33% to our portfolio for 9% of company value,” Moreland said.

Crown Castle’s deal followed other transactions, including SBA picking up 2,300 towers and DAS assets from Mobilitie for $1.1 billion as well as acquiring rival TowerCo for $1.45 billion in June.

SBA Communications President and CEO Jeffrey Stoops noted that the only remaining significant tower assets left in the domestic carrier space belong to Verizon Wireless, AT&T Mobility and U.S. Cellular, and that he did not suspect that the first two were in any position or need to sell of those towers. Stoops explained that most carriers sell off towers in order to raise needed capital, something that was cited in both T-Mobile USA’s recent decision as well as previous deals by Sprint Nextel and Leap Wireless, a position that neither of the big two carriers finds themselves in.

That would seem to leave just U.S. Cellular as the remaining target for a potential tower sale, which is sure to stoke rumors in the coming months.

Jim Taiclet, chairman, president and CEO of American Tower, noted that while the domestic market for tower deals was more limited, his company sees great potential in international markets. Taiclet noted that many countries are still in the process of evolving from 2G to 3G technologies, with financial needs that could lead to tower divestitures. In addition, many of those markets are not seeing the valuation levels on tower assets that have been seen in the U.S. market, which opens up greater opportunities for a stronger financial return. Taiclet added that American Tower has picked up 15,000 tower assets over the past year-and-a-half, with 90% of those coming outside of the United States.

As for financing potential deals, Stoops noted it was indeed a great time to acquire capital. “All of us have great access to capital, and that is great,” he exclaimed.

One challenge for the traditional tower space remains small cells. Stoops noted that the key to monetizing that space is to find ways to share assets so that multiple carriers can partake in a single installation, thus allowing a site owner to monetize the investment over multiple tenants and reduce costs. However, the specific and targeted nature of small cell deployments has so far limited that ability.

“Small cells become very specific in their needs so that what may work for one might not work for others,” Stoops explained.

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