January 20, 2015 — NTELOS Holdings has sold the last of its cell towers to private equity firm Grain Management, which invests in the media and communications sectors.
Michael Huber, chairman of the board of NTELOS Holdings, called the transaction an “opportunistic sale of non-strategic assets,” which will allow the company to focus on its West Virginia and western Virginia markets.
The agreement calls for the sale of 103 cell towers for $41 million or about $400,000 per tower. The transaction is expected to close in multiple installments during 2015, with the first installment expected to close in the first quarter. NTLS will enter into a lease agreement for the towers that provides it with access to reserve capacity.
In December 2014, NTELOS Holdings sold its 1900 MHz PCS wireless spectrum licenses covering eastern Virginia to T-Mobile for $56 million as part of a change in its strategic focus that expands LTE network build outs. At that time, the carrier announced it was exploring the sale of cell towers and undeployed spectrum in the eastern region.
“The tower sale does not come as a surprise, as NTLS signaled it was seeking to monetize its towers when it announced the divestiture of its eastern markets [in December 2014],” wrote Jennifer Fritzsche, Wells Fargo senior analyst. “The price per tower of $400,000, however, is higher than we expected, as we previously had assumed $100,000 per site when estimating NTLS’s core asset value.
Media Venture Partners served as exclusive financial advisor to NTELOS on the transaction.
By Don Bishop
Individual tower owners can best serve the carriers by building the towers for them. They are able to do it faster than some of the carriers themselves or even some of the large national tower companies.
In late August, AGL spoke with Clayton Funk, a managing director with Media Venture Partners in the firm’s Kansas City, Mo., office, and Jason Nicolay, a vice president with the firm. Along with Ryan Carr, an analyst with the firm, they wrote the article “Trends and Forecasts for the Wireless and Tower Industries,” published in the September issue
AGL: What is your role at Media Venture Partners?
Funk: I’m a managing director.
AGL: What is Media Venture Partners?
Funk: Media Venture Partners is a boutique investment banking firm specializing in areas of telecommunications, media and technology. “Boutique” means we’re very focused in our areas. We focus on private market mergers and acquisitions along with capital raising. Our firm is not one that would be doing any initial public offerings or high-yield debt deals that you’ll hear about from large Wall Street firms such as a Goldman Sachs. However, we are specialists and experts in our areas of focus.
AGL: How did you get started in investment banking?
Funk: In many ways, it was really good fortune. There were some guys I had gone to college with who formed a boutique, investment banking firm here in Kansas City that I was with for about seven and a half years called Nations Media Partners. In 1997, they contacted me and asked whether I would like to help them start the wireless tower division because they felt there was an opportunity for an intermediary to help represent sellers primarily in selling their tower assets, but as well looking to do some capital raising.
AGL: Why do you like to write the Tower Market Report?
Funk: We’re very flattered to be asked to write the Tower Market Report every year. We get a lot of comments on it from our clients and prospective clients and from people in the industry.
From our standpoint, it’s very good exposure, and we’re flattered to be recognized as people who can offer that to the readers.
It gives us the opportunity to take a step back, look at what we wrote last year, and ask, “I wonder what’s changed?” For us to be able to go through and edit that, fortunately, over the last two to three years, we’ve been able to say the same things: the market’s hot, prices are high, and the future is incredibly bright and almost limitless for the tower industry. Maybe it’s good luck and karma that we can continue to write this and hopefully nothing bad will happen to the industry.
AGL: Here’s something that happened after you wrote your article. AT&T announced it wants to buy Leap Wireless. What effect would a purchase of Leap Wireless by AT&T have on the tower industry?
Funk: It’s great news in the fact that people have questioned the creditworthiness of Leap as a tenant on the towers. I don’t think you’re going to see any wholesale decommissioning of sites. You’re adding a whole bunch of new subscribers onto the AT&T network.
The AT&T network has historically been very constrained for capacity for data usage. It’s good in the fact that instead of having maybe AT&T as a tenant and then Leap as somebody who is a little more suspect as far as a creditworthy tenant, you may have AT&T paying for two leases. AT&T is a very sought-after tenant for tower owners and tower buyers. I think it is a positive overall.
AGL: Multiples. Everyone wants to know, what’s the trend for multiples?
Funk: Multiples have stayed steady over the last year and a half, maybe even two years. It’s important to take a step back because whenever we are asked what towers are worth, what are they trading for and what are the multiples for towers, we can give an answer. However, it’s more important to consider what the towers look like. The multiples for a fully loaded tower with no more structural capacity or market potential for more tenants is very different from the multiples paid for what we call immature towers that tend to be new, that maybe were built for an anchor tenant and that’s the only tenant on there, but there is still some structural capacity remaining on the tower such that we think and the buyer thinks that there is some market upside for the tower for future tenants.
The multiples have stayed high, and we conclude that based on historical comps over the past 16 years of brokering transactions. They’ve stayed flat, but they’ve stayed high, which is great. Just being able to come right out of the box and give a specific number, we can do that, but we usually have to learn a lot more about the assets themselves.
AGL: If you could change one thing about the tower industry, what would you change?
Funk: In many cases, I would make it easier for individual tower owners to build towers, instead of having the carriers build towers themselves or being able to outsource to maybe a large, national tower company to do all the builds. That’s for several reasons. One, I think, selfishly, a lot of our clients could build more towers, and the more towers that they build, then the more capital they’ll need, and hopefully we can provide that or help them find that capital or the more towers they would build, they would sell more towers down the road and we’ll be able to assist them with that.
What I hear from a lot of our clients is that they can best serve the carriers by building the towers for them. They are able to do it faster than some of the carriers themselves or even some of the large national tower companies.
They are able to do it not only faster but also less expensively. They are able to deliver a level of detail and service to their clients that maybe the clients don’t always appreciate. That’s why they’ll build it either for their own account or outsource it in large buckets to the national companies.
AGL: Jason, what is your role at Media Venture Partners?
Nicolay: I’m a vice president. Within MVP, I spend my time in the telecom group, which primarily is towers, spectrum and wireless operators. I work on a lot of sell-side projects with owners and entrepreneurs.
AGL: What brought you into this line of work?
Nicolay: I started as a certified public accountant, and I had a client who had a significant amount of work in mergers and acquisitions. I knew from being on that side of it that I actually wanted to be on the front end of the deal, working for clients and helping them secure the best price and actually be able to work on the deal. I haven’t regretted moving in that direction since.
AGL: How do you view the proposed AT&T purchase of Leap Wireless?
Nicolay: The AT&T purchase of Leap Wireless is driven by their need for additional spectrum in highly coveted top-25-plus markets where they will be able to secure a significant footprint in Advanced Wireless Service spectrum. That footprint provides a lot of value for them.
The acquisition also helps their network, once they’re able to convert the subscribers from CDMA to GSM. It’s a very valuable transaction for AT&T for their network and spectrum needs.
AGL: Who do you think will be next to be acquired?
Nicolay: As you look at the wireless landscape today, the Big Four carriers, AT&T, Verizon, T-Mobile and Sprint, collectively they make up about 96 percent of all wireless subscribers. Of the remaining 4 percent, 2 percent is U.S. Cellular. These are all wireless devices, including iPhones, smartphones and tablets. It doesn’t leave a lot of room for a significant amount of growth, such as acquiring another Leap. U.S. Cellular probably is an attractive target to some, given their spectrum. But they tend to operate in rural markets. C Spire is another large operator. From there, there’s the Competitive Cellular Association with members that operate in a lot of rural, tier 2 and tier 3 markets.
They’re the next frontier, and they serve a much different customer than the customers in New York or San Francisco, for instance.
A new wave of transactions could involve mobile virtual network operators as carriers try to acquire subscribers that don’t need networks. There’s a growing number of MVNOs, which would be attractive at some point because carriers are cannibalizing each other’s subscribers because there aren’t many other subscribers to acquire.
AGL: If you could change one thing about the wireless carriers, what would you change?
Nicolay: I don’t know if there is anything I would change. Carriers have been dealt a difficult challenge to meet consumers’ needs, which are evolving faster than the carriers’ abilities to deploy networks. Consumers are driven, now, to watch a YouTube video or upload their own YouTube video to Facebook or elsewhere. There’s a large demand for data-intensive applications and uses for that in order to connect with your friends and tweet about your life. The biggest thing for carriers is being able to deploy network services quicker.
The United States is deploying wireless network services faster than most of the rest of the globe, especially with LTE. All the U.S. carriers are doing a good job of staying ahead of the curve compared with other parts of the world. They have a tough job keeping up with consumer demand.
Media Venture Partners, a telecom-focused investment bank, is a division of Financial Telesis. Clayton Funk can be reached at firstname.lastname@example.org or (816) 977-2822. Jason Nicolay can be reached at email@example.com or (816) 977-2823. Ryan Carr can be reached at firstname.lastname@example.org or (415)
This week’s blockbuster spectrum news was DISH Network’s proposal to purchase all of the Clearwire common shares at $3.30. Slightly more than the $2.97 per share offered by Clearwire’s half-owner Sprint Nextel, last December.
Sprint wasn’t buying it. In response to the DISH Proposal, Sprint stated in a letter to Clearwire that the DISH proposal is “illusory, inferior to the Sprint transaction and not viable because it cannot be implemented in light of Clearwire’s current legal and contractual obligations.”
The Wall Street Journal wasn’t buying it either, quoting analysts that ascribed many different ulterior motives to DISH Chairman Charlie Ergen’s negotiating tactics. While some said Ergen is looking to get Sprint to partner with DISH, others said he is acting out of revenge against Sprint for its attempt to block the FCC’s approval of DISH’s spectrum.
Charlie Ergen is a known for being a poker player that isn’t afraid to try to win with a bad hand, according to Clayton Funk, managing director, Media Venture Partners.
“[Ergen] can either sell his spectrum to Sprint or he can allow Sprint to lease his spectrum through a wholesale agreement,” Funk said. “Either way, it would be good for the tower industry because it would allow for more network deployment, with more antennas and lines on towers that utilize that spectrum.”
At the very least, DISH’s $3.30 offer may help the class action lawsuit of Crest Financial, Clearwire’s second largest shareholder, which accuses Clearwire of accepting too low of an offer at $2.97 per share.
“What Ergen will certainly achieve is to give Crest and Mount Kellett far more ammunition in their fight against the Sprint takeover, potentially tying up the proposed Sprint buyout for months,” wrote Tim Farrar, principal, Telecom, Media and Finance Associates, in a blog post.
A brief summary of the proposed deal. DISH would acquire 24 percent of Clearwire’s spectrum for $2.2 billion, with the option of an additional 2 megahertz. Also, Clearwire would provide DISH with the construction, operation, maintenance and management of a wireless network covering AWS-4 spectrum and new deployments of 2.5 GHz spectrum.