SBAC Extends Tower Portfolio

Cell phone tower operator SBA Communication Corp. ( SBAC - Snapshot Report ) plans to buy 3252 tower sites from TowerCo in the U.S. and Puetro Rico for about $1.45 billion. We believe that the growing demand of data services from smartphone users is the primary reason for the acquisition.

SBA Communication, the third largest tower operator in the U.S., will pay $1.2 billion in cash and 4.6 million SBA class A shares to TowerCo and will use a combination of its existing cash balance, credit facility and $900 million in debt from JPMorgan Chase & Co. ( JPM - Analyst Report ) to close the deal. The company expects to close by the fourth quarter of this year and will boost its tower count to more than 15,000.

A telecom tower can accommodate antennas for multiple carriers which reduce the network cost of operators and at the same time produce more profit for tower companies. Once completed, the deal is expected to generate $155 to $160 million in leasing revenue and $93 to $95 million in tower cash flow for SBAC. Furthermore, TowerCo possess high quality assets which have ample scope for tenant addition and are well placed to help SBA Communication integrate its assets more quickly.

Increased adaptation of smartphones and tablets has led to unprecedented growth in mobile data traffic. All major tower operators are going through acquisition sprees to ramp up their capacity.

The largest independent tower operator, American Tower Corporation ( AMT - Analyst Report ) , has spent $500 million to buy 2500 towers from Telefornica S.A.'s ( TEF - Analyst Report ) Mexican arm, whereas Crown Castle International ( CCI - Analyst Report ) has snapped up NextG Networks Inc. for $1 billion.

This is the second acquisition for SBA Communication in the last four months, after it bought 2300 antenna towers from Mobilitie LLC in February for $1.1 billion.

A large portion of TowerCo’s revenue comes from Sprint-Nextel Corp. ( S - Analyst Report ) , which has recently announced it is dumping its Integrated Digital Enhance Network (iDEN) technology, as part of a network upgrade policy to offer next-generation LTE services.

It is believed that SBA Communication is acquiring TowerCo to bring the third largest U.S. carrier under its belt. However, following the acquisition, Moody’s credit rating has changed SBA Communication’s debt rating to negative from stable as they believe that the company’s liquidity position could be stressed.