November 3, 2014 — Infrastructure construction giant MasTec has expanded its wireless play with the acquisition of WesTower Communications for $199 million in cash. WesTower, which has 1,600 employees, provides construction and maintenance services to wireless carriers through 16 regional operating offices in the eastern, central and western United States.
WesTower provides MasTec with scale, geographic expansion, increased market penetration and a skilled workforce. Additionally, AT&T comprises 70 percent of WesTower’s portfolio.
The WesTower/MasTec marriage brings with it compelling synergies. The geographic overlap between the two is only 30 percent. WesTower has a large presence in California and the Pacific Northwest, where MasTec had no presence, according to Jose Mas, MasTec’s CEO.
“This is very strategic the combined service offering that we have positions us to operate in a completely different way,” Mas said. “I can’t emphasize enough the importance of geographic diversity and what it does for us to be a truly nationwide player. New services will be provided with the combined entity. For certain carriers, it’s a big benefit to have a company that can deploy in multiple geographical areas.”
WesTower Had Accounts Receivable Woes
MasTec, which has grown wireless infrastructure revenues from $80 million to $900 million since 2008, has had challenges dealing with the growth and the investments that were needed to effectively manage the working capital.
“We were very vocal about the working capital challenges, turning work orders into receivables is a difficult task and without the proper investment in the systems and processes it becomes very challenging,” Mas said. “At MasTec, the automation of the processes and systems helped us improve margins consistently over the last few years.”
WesTower, which grew from $100 million to $450 million in revenues from 2010 to 2014, has had problems maintaining working capital and collecting accounts receivables, Mas said.
MasTec can help WesTower with the challenges it faces in its operating margin and working capital levels, according to Mas. “We are in a unique position to improve WesTower’s post-acquisition operating results and working capital efficiency, and we expect to expand margins, reduce working capital requirements and grow the combined business with multiple customers,” he said.
WesTower has $159 million in tangible net worth, comprised mostly of working capital of $151 million, including $18 million in cash. By integrating WesTower’s operations into MasTec’s processes, the overall working capital levels in these operations can be reduced by as much as 20 percent or $30 million, according to George Pita, MasTec’s CFO.
“Once we can make their business processes look more like ours we can significantly reduce our investment in them,” Pita said. “We expect this improvement to come from a reduction in billing costs and accounts receivable as the acquired days outstanding of WesTower is 40 percent higher than similar MasTec operations.”
In 2015, MasTec expects WesTower’s revenue to shrink to $400 million as renegotiates or exits some nonperforming contracts.
“As we look at their entire portfolio, there are some contracts that are not performing as well as they should,” Mas said. “There is some chance for a scale back in some areas.”