American Tower’s InSite Agreement: High Valuations, New Market

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With American Tower’s (NYSE:AMT) announced agreement to acquire InSite Wireless yesterday, one of the country’s Big Three tower companies ventured into a previously under-tapped market. At the same time, the company helped establish a high-water mark for tower valuations, according to industry analysts. The proposed $3.5 billion dollar price tag for 3,000 sites, a combination of macro towers and rooftops in both the U.S. and Canada, put the multiple at around a relatively healthy thirty-time’s cash flow.

Spencer Kurn of New Street views the transaction as a “modest positive.” Kurn said the purchase multiple of 30x tower cash flow “is high relative to historical U.S. tower deals, particularly for a portfolio that only generates ~2/3 of revenue from towers and the rest from DAS, land parcels, and rooftops,” he said. “However, the relative underexposure of InSite to the big three wireless carriers should yield faster growth on their portfolio relative to AMT’s existing U.S. towers.”

Clayton Funk, Managing Director at Houlihan Lokey told Inside Towers multiples in the 30x range are at a high, but they have been that way for several years. “It has been constant for awhile,” Funk said.  “It’s as robust a market as we’ve ever seen.”

Traditionally, the “Big Three” have focused internationally on more volatile markets in South and Central America, Africa, India and Europe. Funk said the Canadian tower inventories have been tightly controlled by the major carriers in The Great White North.

“The three main carriers own their own towers,” Funk said, “they do not like to co-locate, and therefore there is not a third-party tower market that is robust. Quite simply, there’s not a lot of towers to buy or develop.”

InSite’s portfolio includes more than 1,400 towers in the U.S., over 200 owned towers in Canada, and, give or take, 70 distributed antenna system networks in the U.S. The deal includes 600 land parcels under communications sites as well as around 400 rooftop sites. The assets are expected to generate close to $150M in property revenue and about $115M in gross margin in their first full year in the portfolio.

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