Alltel Corp.'s $27.5 billion leveraged buyout was one big deal that managed to sail through last year amid a raft of broken deals. More remarkable was the $28.1 billion sale of the wireless company to the mobile phone joint venture of Vodafone Group plc and Verizon Communications Inc., an exit that earned TPG Capital and Goldman Sachs Capital Partners a 28% windfall and the award for quickest flip of the year.

Alltel president and CEO Scott Ford recently acknowledged that a tie-up with a national carrier was inevitable. Just seven months after the privatization closed in November came the announcement of the deal with Verizon Wireless in June, sooner than expected. A few factors determined the timing. Verizon Wireless and Alltel had both participated in a government wireless auction earlier in the year and during the sale were barred from talking by rules meant to prevent collusion. When the quiet period expired, the choppy debt markets presented Verizon Wireless with an opportunity. The wireless carrier saw a chance to purchase some of Alltel's debt at a discount and provide the backers with enough upside to make the deal happen.

The sponsors stand to gain $1.3 billion on their $4.53 billion equity investment, and will add to their take by selling Alltel debt they purchased below face value.

A sale to Verizon Wireless was the top exit scenario for TPG and GSCP. Of the carriers that use the code division multiple access, or CDMA, wireless technology that Alltel deploys, Verizon Wireless has the deepest pockets. Sprint Nextel Corp. is the only other national CDMA carrier. The Overland Park, Kan., telecom is reeling from the $35 billion merger of Sprint and Nextel in 2005, however. Since the deal, it has hemorrhaged customers and is in no position to undertake another ambitious purchase. While the banks are giving Verizon Wireless a discount on some of the debt, there is a silver lining for them. They are providing capital to a dominant telecom with a strong balance sheet, rather than to a highly levered LBO. Plus, Verizon is taking out $5 billion in Alltel's bridge financing in advance of the deal, though at a discount.

The deal will vault Verizon Wireless past AT&T Inc. to become the largest U.S. wireless carrier. The speedy exit may also provide comfort to the private equity market. "The headline is that the deal happened so quickly," says Steven Rist of Sonnenschein Nath & Rosenthal LLP, adding that the exit "projects well" for private equity. "PE continues to attract capital, and returns like this, in relation to the length of the investment, will only continue to encourage the capital inflow," Rist says.

For TPG and GSCP, it was a choice between selling now or waiting perhaps three or four years. If the banks had syndicated bonds to refinance Alltel's bridge loans, the call protections on the notes would have complicated a sale. Taking the bonds out early would have cost Verizon Wireless billions above their face value for the first couple of years.

By that time, it might have behooved Alltel to wait a little longer. Though it deploys CDMA technology, the carrier plans to roll out an emerging standard called longer-term evolution, or LTE. AT&T and T-Mobile USA are migrating to LTE and in a few years could have participated in an auction for Alltel.

Waiting would have carried its own risks, however. Alltel is the fifth-largest U.S. carrier. While hardly small beer, it faces a disadvantage to larger carriers like Verizon Wireless and AT&T, which are bundling wireless with Internet, TV and other services. The top carriers also have more clout in negotiating mobile content deals with companies such as Apple Inc. and Viacom Inc.

Alltel's Ford acknowledged that size was becoming an issue in a June interview with Arkansas Business News. He admitted pursuing Sprint, AT&T Wireless and Deutsche Telekom AG's T-Mobile in a quest for national scale.

Alltel is a well-run company with solid margins. By exiting now, TPG and GSCP eliminate the risk that shifts in the industry could disrupt their investment thesis. They hope to complete the deal with Verizon Wireless this year, with a $1.3 billion payday if they do.

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