May 7, 2015 — Having sold the majority of its towers in October 2014 and paid back its original investors, Tarpon Towers has secured new funding and is looking to start over building another cell tower portfolio. But this time there is a twist. This round of financing highlights a shift in capitalization strategy as Tarpon reduces the cost of its capital and increases its investment horizon.
Tarpon II was recently formed by Tarpon Towers’ management with a $60 million equity commitment from Redwood Capital Investments and Tarpon’s management team and a $40 million credit facility from a regional bank.
Ron Bizick II, CEO, and Bill Freeman, president, co-founded Florida Tower Partners in 2008, which was later renamed Tarpon Towers, and received venture capital from ABS Capital Partners in 2009 and from Spire Capital Partners in 2010.
“ABS and Spire were private equity investment groups with the typical higher return on capital expectations that you find with such groups,” Bizick said. “They were great partners and everyone was pleased with the returns. We invested more than $85 million of capital together. However, all good things do come to an end, and as is the case with private equity funds, the fund eventually must return capital to their investors.”
Since inception, the company has built or bought more than 250 towers and sold them off in three separate transactions to American Tower. ABS and Spire exited the Tarpon investment with the final tower sale last October.
As Tarpon contemplated its next round of funding, it began looking for a longer term investor with a lower return on investment threshold. It looked at sovereign wealth funds, infrastructure funds and family office type funds.
“We had a number of options but given our current size and strategy we decided a family office investor would be the way to go and chose Redwood Capital Investments,” Bizick said. “They have a very long view of the business like we do and like infrastructure asset plays. They are a patient investor and do not have the need to invest large initial amounts of capital or invest quickly.
“We would all like to find sizeable, great returning tower investments, but sometimes being patient and not investing can be the best decision. With Redwood, we have a group that affords us the flexibility to do deals of almost any size at a time and price that we think is appropriate,” he added.
The industry has changed quite rapidly after 2008 with respect to the cost of capital and sources of capital available, according to Bizick, and Tarpon was looking to become more competitive in this regard with Tarpon II.
“Low cost of capital is a strategic advantage to a tower company,” Bizick said. “We hope to be even more competitive on larger transactions than we have been in the past. We are all very optimistic about where the industry is headed and what we can do with our new partner over the next 10 years.”
The company, which now has 20 assets and some 75 other sites in various stages of development or acquisition process, is in the process of rebooting and aims to add 50 to 100 assets each year through a combined build and buy strategy. Bizick and Freeman do not plan on changing the company’s grassroots style of cell tower development, finding value through pursuing mixed tenant assets with telephony, broadcasters and government tenants on the towers, and exploiting 26 years of relationships
“We will continue to strategically develop great assets in local markets where we have strong relationships,” he said. “We will compete for, and hopefully periodically win, build-to-suit contracts with the carriers. We will work locally with joint development partners that have grassroots knowledge of where assets need to be built for multiple carriers. And, we will buy towers on a “one off” or multiple tower basis whenever it makes sense. It’s the same formula that we and others have used for years. Our focus is on asset quality and not quantity per se. Being big for big’s sake is not of interest to us.”
Before starting Tarpon, Freeman and Bizick were executives at Global Signal, formerly Pinnacle, and before that Bizick was an executive with SBA Communications from its inception. Over 26 years, Bizick has seen some ups and downs in the tower industry but he said he has never seen it as good as it is now.
“After the financial stumble in 2008, the public companies got healthier faster than anyone expected. With cheaper debt and enormous capital spend by the carriers as two primary factors, we have seen multiples for tower deals rise to levels never seen before,” he said.
Bizick believes in the tower industry over the long term. “The FCC recently completed a spectrum auction and another is on the way. Historically this has always resulted in a corresponding investment in the infrastructure to support the deployment of the auctioned spectrum,” he said. “I think if you are patient and prudent with your capital, you can enjoy success in the industry for a long time. I think there is a lot of runway left.”