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Mobilitie deal may hobble SBA's T-Mobile pursuit

by Chris Nolter | Published February 22, 2012 at 9:35 AM

Wireless infrastructure continues to be an active M&A market, with SBA Communications Corp. announcing Tuesday, Feb. 21, that it will purchase towers and other assets from Mobilitie LLC for $1.1 billion.

SBA will add a portfolio of 2,300 towers in the U.S. and Central America, and will also pick up distributed antenna system assets in Chicago, New York and other cities.

The transaction reflects demand for towers and for DAS architecture. But as Evercore Partners Inc.'s Jonathan Schildkraut observed, the purchase could make it difficult for SBA to pursue the large portfolio of towers that Deutsche Telekom AG's T-Mobile USA Inc. could bring to market.

Based in Newport Beach, Calif., Mobilitie has backing from Oaktree Capital Management LP. The company did not respond to queries about the extent of its systems and operations following the sale.

SBA estimates the assets it is acquiring will generate $75 million in 2012 cash flow, with DAS accounting for $16 million.

DAS architecture includes a number of antennas linked by fiber. They are deployed in areas where zoning, terrain or other factors impede traditional wireless tower coverage.

"There are only a handful of scale DAS providers," Schildkraut said. In fact, the biggest portfolios have been sold.

Crown Castle International Corp. announced in December that it would buy Madison Dearborn Partners LLC-backed NextG Networks Inc. for $1 billion. In 2010, Crown Castle acquired DAS operator NewPath Networks from PE firm Charterhouse Group for $115 million.

SBA holds a significant stake in ExteNet Systems Inc., of Lisle, Ill. SBA joined with an affiliate of Soros Fund Management LLC and others to invest $128 million in ExteNet in 2010. Schildkraut suggested that SBA could fold the Mobilitie assets into ExteNet for a larger equity position.

For Mobilitie, SBA will pay $850 million in cash and 5.25 million shares of stock, worth a little more than $240 million based on Friday's close.

Barclays Bank plc and J.P. Morgan Chase & Co. are providing $500 million in financing to help cover the cash portion of the buyout.

Jennifer M. Fritzsche of Wells Fargo Securities LLC noted in a report that Mobilitie would be SBA's largest deal, topping the $1 billion purchase of AAT Communications Corp., which owned 1,850 towers, in 2006.

Following the deal, SBA projects that its leverage will be 7.7 to 7.8 times Ebitda.

Schildkraut suggested that after the purchase SBA might not have the debt capacity to pursue T-Mobile USA's 7,300 towers if the company puts the assets on the market.

T-Mobile USA had previously explored a sale. With the collapse of its sale to AT&T Inc., the company could shop the towers, which Schildkraut suggests could be worth $3 billion to $4 billion.

That would be a positive for American Tower Corp. and Crown Castle, which could pursue the T-Mobile USA towers.

And conditions favor more tower deals.

For example, legislation to extend the payroll income tax cut includes provisions to boost wireless broadband coverage by making spectrum available, among other steps.

Schildkraut noted that the legislation would prevent state and local governments from denying operators' requests to add to existing towers, as long as the proposals did not substantially change the physical dimensions of the site. The provision could make it more appealing to buy than to build.

"We could see tower operators deploy more capital to acquire existing sites rather than to build new sites," Schildkraut said.

Barclays and J.P. Morgan advised SBA, which retained Greenberg Traurig LLP.

Mobilitie retained Moelis & Co. LLC and Bank of America Merrill Lynch, and received counsel from Goodwin Procter LLP.

Paul, Weiss, Rifkind, Wharton & Garrison LLP advised Oaktree.

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