Mobilitie Tower Sale’s 15X Multiples are Unique — Funk

March 11, 2012

SBA Communications acquisition of more than 2,300 Towers and DAS assets from Mobilitie in February was the first major M&A deal of 2012 (and maybe the largest of the year). We asked Clayton Funk, managing director, Media Venture Partners, to run the numbers of the $1.1 billion deal and give his take the impact the transaction will have on the tower industry.

AGL Bulletin: Were the multiples in this deal in line with previous tranactions:

Funk: The acquisition multiple was reported to be roughly 15x tower cash flow, which would make it slightly below where we’ve seen other towers sales prices during the last 18-24 months. What was unique about Mobilitie’s portfolio was that the anchor tenants shared in any incremental revenue that was added to the towers, as much as up to 50 percent for each new tenant. While Mobilitie’s leases were also triple-net in nature, which alleviates the tower owner of assuming expenses — such as ground leases, taxes and utilities — the valuation was likely suppressed compared with other recent sales since there was a large revenue sharing component that other towers don’t have.

AGL Bulletin: Are prices going up, down or are they steady?

Funk: We see tower M&A valuations and prices as holding steady during the last 18-24 months even since the brief drop during the late 2008/early 2009 financial crisis. Valuations right now are matching historic highs, because buyers and investors believe in the fundamentals of the wireless and tower industries. With easy access to low cost debt, both public and private tower companies have capital to deploy and acquisitions increase scale faster than development. How long will this hot market last? Not sure but there are more factors that could drive valuations lower (a rise in interest rates, the threat of carrier consolidation, etc…) than actually have them go up. We see them as remaining steady for the foreseeable future unless something unforeseeable happens such as an out of the blue announcement like what happened last spring with the AT&T and T-Mobile deal.

AGL Bulletin: How does the sale affect future tower transactions?

Funk: As I mentioned earlier, it is tough to say that the Mobilitie/SBA deal is a good “comp” given some of the characteristics of the Mobilitie deal and so the only “impact” that the sale may have on future tower transactions is it always raises discussions about what are towers selling for. Every tower is unique as is every portfolio of sites whether it be for three towers or 3,000 towers. Just because Mobilitie may have decided to sell for 15x tower cash flow doesn’t mean that 15x is the benchmark number for future sales. A tower owner should get a sense of what their towers are worth instead of just assuming that is the “market”. For the rest of 2012, I think it will be business as usual with buyers still interested in buying deals as they come to market.

AGL Bulletin: It looked like Mobilitie wanted to be the fourth major tower company. Obviously that was not the plan or the plan changed.

Funk:Arguably you could say they were on their way in terms of size but they and their investors determined that now was the best time to divest of their portfolio versus trying to get larger than 2,300 towers and several DAS networks. It is impressive they got to their size and scale in the amount of time they did, especially since it was done primarily through organic development instead of acquisitions. Getting to that size isn’t easy.

AGL Bulletin: Any sign of whether Mobilitie will continue on and develop more sites or is this it?

Funk: From what we hear, Mobilitie will continue to develop towers, which is not unusual in the tower business after a sale. It is probably more common than not that a management team or company remains intact post-sale to continue to capitalize on relationships and develop another portfolio of towers. MVP has had many clients who decide to sell all or a substantial number of their tower assets but stay in the business building towers for their long time clients. I can’t speak for Mobilitie’s plans with 100 percent certainty but I would be surprised if they left the tower business altogether.