Cell phone tower operator SBA Communication Corp. (SBAC - Snapshot Report) , has entered into a definitive agreement with Brazilian telecom carrier, Oi SA , and its subsidiaries. Per the agreement, SBAC will have exclusive rights for Oi’s 2,113 towers. Growing demand for data services by smartphone users is believed to be the primary reason for the acquisition.
SBA Communication, the third-largest tower operator in the U.S., will pay $302.6 million to acquire the 2,000-plus tires, which is part of the fixed wireline concession provided by the Brazilian government. The deal, subject to customary regulatory approval, is expected to close by the end of this year.
Post the transaction, Oi will sign a long-term lease agreement with SBAC for renting out the antenna space within the towers. Meanwhile, SBAC will maintain and commercially operate all the towers and have the right to enter into leasing agreements with other operators.
The tenancy ratio, which is expressed as a fraction of the total operators sharing the tower sites by the total number of sites present, currently stands at 1.15. Oi’s1.15 tenancy ratio is below the Latin American average of 1.5, thus allowing the tower operator to add other tenants.
Upon completion of the deal, SBAC will have close to 20,000 tower sites with around 3,000 sites in the biggest Latin American economy. The tower operator expects to generate $32.4 million of revenues and $67.3 million of cash flow in 2014 from the towers. SBAC will fund the deal from the available cash in hand and the $770 million existing revolving credit facilities.
This is the second tower deal by SBAC in Brazil in the last six months after it acquired 800 wireless towers of Vivo S.A., a subsidiary of Telefonica Brazil S.A. (VIV - Analyst Report) .With this acquisition, SBA Communications became the second U.S. independent tower operator after American Tower Corp. (AMT - Analyst Report) to enter the Brazilian market.
Increased adaptation of smartphones and tablets has led to an unprecedented growth in mobile data traffic. All the major tower operators are carrying out acquisitions to ramp up their capacity. In Dec 2012, Crown Castle International acquired 7,100 wireless broadcast towers of T-Mobile US, making it the largest tower operator in the U.S.
According to Frost and Sullivan, the Brazilian telecommunication market is expected to reach $100 billion by 2013, which provides a significant opportunity for tower companies in the country. We believe in addition to boosting its capacity in Brazil, the acquisition will reduce SBAC’s dependence on the U.S.
SBA Communication currently carries a Zacks Rank #3 (Hold).