TowerCo has formed a partnership created by members of the TowerCo management team and Peppertree Capital Management. As part of the transaction, TowerCo retained all of its assets and Peppertree committed an additional $300 million of equity capital to fund future growth. The transaction represents Peppertree’s 76th investment in the communications infrastructure industry.In connection with the transaction, the majority of the TowerCo management team will remain in place and Todd Boyer will take over as Chief Executive Officer.
Alpina Capital, LLC, acted as the exclusive financial advisor to the TowerCo V management team in this transaction.
May 17, 2016 — TowerCo III has sold 253 towers and 95 other assets to Grain Infrastructure II for $244 million. The towers, half of which were new builds and half aggregated, were spread across nearly all of the company’s 37 states and territories.
The company still has some of the assets that it purchased from Iowa Wireless Services, plus the five-year exclusive build-to-suit agreement. By the time of the sale to Grain, TowerCo had already launched TowerCo IV, which has nearly 200 assets.
“We are by no means out of business,” said Richard Byrne, CEO of TowerCo. “We look forward to the continued growth of TowerCo IV, which is off to a very good start.”
It was the company’s first tower sale since TowerCo II Holdings, which had 3,256 towers, were sold to SBA Communications in 2012 in a transaction valued at just under $1.5 billion.
“When we sold TowerCo II, we knew we weren’t going to be able to get back to that size so we had to downsize,” Byrne said. “TowerCo III eventually got back to the size where we ended TowerCo I with 28 people. Our hope is to keep everyone so we are working hard to quickly grow back into our shoes.”
“I’m happy with our growth in TowerCo IV and that we have assets that we were able to move into TowerCo IV. It takes a lot of the pressure off of starting the business over again,” he added.
Third Portfolio Sale Since 2004
The sale marks the third portfolio of towers and assets sold by TowerCo since it was formed in 2004. Equity investors Tailwind Capital Soros Fund Management have been along for the ride since the beginning and have agreed to back the company for a fourth time.
The decision to put the assets up for sale this Spring was made last Summer, but the timing of the transaction was not the result of any time horizon on the part of TowerCo’s equity investors, according to Byrne.
“We have sold assets every four years. That wasn’t a pre-ordained plan. It is just the way it has worked out,” he said. “[The equity investors] are very supportive. If it makes sense to doing something, they will do it. They have always been there with the capital we need to grow and have never rushed us to make a move we didn’t think made sense.”
Byrne is now in search of opportunities to support current staffing levels. He expects a lot of TowerCo’s growth will come from new builds, but said it won’t shy away from further aggregation.
While it is currently a sellers’ market, Byrne said the economics of cell tower development have changed as the wireless industry has matured. He thought TowerCo III’s time horizon would be much longer, but now he says with a laugh that he expects TowerCo IV to take him into his retirement years.
“I tell my investors, the time horizon is going to be longer and the returns are going to be lower. And they get it,” he said.
Less than three weeks after closing its 3,256 tower sale to SBA Communications, TowerCo is back in the game.
The tower company purchased 119 towers from i Wireless along with a five-year exclusive build-to-suit agreement and the opportunity to acquire future towers i Wireless may bring to market. The transaction is valued at $45.5 million and is expected to close in the fourth quarter of 2012.
Begun in 2004, TowerCo built up a portfolio of 430 towers and sold it to SBA for $193.5 million in 2008. Later that year, TowerCo purchased more than 3,000 towers from Sprint Nextel for $670 million. The tower company built that portfolio up to more than 3,200 towers and sold again to SBA four years later.
“It’s a repeat performance for TowerCo,” R. Clayton Funk, managing director, Media Venture Partners, told AGL Bulletin. “It signals their continue confidence in the tower industry and their ability to grow the company.”
TowerCo’s business model is to purchase carrier-owned and operated towers, which many times have not been managed comprehensively and marketed aggressively to other tenants, according to Funk.
“The strength of TowerCo is its ability to professionally shore up the assets and launch a focused marketing effort,” Funk said.
i wireless, headquartered in Urbandale, Iowa, is a partnership between T-Mobile USA and Iowa Network Services, a privately owned by a group of 127 independent telephone companies that serve 500,000 rural Iowans.
“The TowerCo deal provides i wireless financial flexibility and will support our recently announced Des Moines market expansion and statewide network investment to bring our customers a stronger and faster 4G experience,” i Wireless CEO Craven Shumaker said in a prepared statement.
Richard Byrne, CEO of TowerCo, said he enjoyed his two week vacation.
Kevin Brynestad of Alpina Capital worked as M&A advisor and Ted Olt of Lane & Waterman acted as legal counsel to i Wireless. Bruce Gutenplan of Paul, Weiss, Rifkind, Wharton and Garrison acted as legal counsel to TowerCo.
In its second major transaction of 2012, SBA Communications has purchased 3,252 tower sites from TowerCo for $1.45 billion. The acquisition gives SBA 16,238 towers, including more than 14,000 in the United States. The deal is expected to close in the fourth quarter.
SBA owned 10,524 towers at the end of 2011 before it purchased Mobilitie’s assets, which included 2,300 towers. With the two purchases, which total almost 5,600 towers, the firm has increased its inventory by about 50 percent.
“The acquisition of TowerCo on the heels of the Mobilitie acquisition demonstrates SBA’s ability to get these large transactions completed while dealing with numerous smaller transactions at the same time. That says a lot about the depth and capability of their M&A folks,” Thomas Engel, Milestone Media, told AGL Bulletin. “These transactions along with the potential sale of the T-Mobile towers and a couple of other large groups shows that the tower sector is continuing to consolidate at a very rapid pace. It appears that it is a very good time for smaller tower operators to avail themselves of this opportunity and take advantage of the ‘seller’s market.’”
SBA projects that the TowerCo assets will produce $155 million to $160 million in leasing revenue. Additionally, the assets are expected to produce between $93 million to $95 million in tower cash flow for the full calendar year 2013.
“We feel strongly about our ability to integrate TowerCo’s assets. We expect smooth, quick and efficient integration of their towers into our portfolio,” said Brendan Cavanagh, chief financial officer, during a conference call.
TowerCo’s portfolio includes towers purchased from Sprint in 2008. While a substantial portion of the Sprint towers use CDMA, there is also a fair amount of iDEN revenue that SBA looked at warily while considering the purchase.
“Based on our due diligence, we were able to understand and underwrite this transaction assuming the worst case decommissioning scenario concerning iDEN,” Cavanagh said.
TowerCo had cut a deal with Sprint as part of the Network Vision where Sprint only has the option to decommission towers only at two times in 2015 and 2018. The worst case scenario would provide a $14 million hit to tower cash flow. In the interim, iDEN will bring in $100 million in iDEN revenue.
The blockbuster tower deal was the result of a long time, trusted business relationship between Jeffrey Stoops, SBA president and CEO and Richard Burns, TowerCo president.
“When Richard Burns approached us about whether we had an interest in acquiring TowerCo, the immediate answer was yes,” Stoops said. “We have been buying towers from Richard for years, most recently in 2008. Given our close working relationship, we know that these towers are in great shape, from legal, operational and physical perspectives.”
Stoops called the TowerCo assets a rare opportunity to increase the size of SBA’s U. S. holdings, a market he still believes in.
“While we have enjoyed tremendous success internationally, we believe the U.S. market is the best in the world operationally,” Stoops said. “This transaction sits firmly within that perspective.”
All of TowerCo’s assets qualify for REIT status, which is important with SBA planning on converting to real estate investment trust status, Stoops said.
Similar to the Mobilitie towers that SBA purchased earlier this year, 67.3 percent of the sites are located in the top 50 BTAs and 78.5 percent are in the top 100 markets. The sites feature an average of 1.8 tenants per tower with an average additional capacity of two tenants per tower. The average remaining years on the ground leases is 20 years, including options.
SBA’s Sprint customer concentration will increase from 23 percent to27 percent, because of the purchase. AT&T accounts for 20 percent; T-Mobile, 15 percent; and Verizon Wireless, 12 percent.
Stoops was asked by one analyst whether the possibility of a T-Mobile/Sprint merger weighed on the purchase of the towers.
“We carefully looked at the amount of T-Mobile/Sprint CDMA overlap in our combined portfolios, and the possibility of churn in the event of a merger. It would equal $42 million in revenue. Most of the shorter leases will be T-Mobile,” Stoops said. “There are some that believe it is going to happen. I personally don’t think it is going to happen, but we looked at it carefully.”
Unlike after the Mobilitie transaction, where SBA wanted to position itself for another major U.S. purchase, SBA does not expect to issue any more equity to speed deleveraging. Instead, it secured a two-year bridge facility in connection with the TowerCo purchase that will give it extra time to refinance.
With the carriers currently consumed with 4G amendment activity, SBA set conservative lease up assumptions on the TowerCo assets for next several years.
Beyond the balance sheets, Ted Abrams, an engineering consultant who provides services to TowerCo, said the mood was somber among the TowerCo employees that he shares office space with in Cary, N.C. after the announcement of the sale.
“The nature of the tower developer business is to build a tower portfolio and keep it at the highest value you can. The price got high enough and the timing was right [so they sold],” Abrams said. “At the staff level it is painful. For me it is sad because the TowerCo culture is a remnant of the SpectraSite culture, which I always enjoyed.”