Telecom Mergers and Acquisitions
Cell tower lease owners cringe when they hear the words ‘Termination‘ or ‘Cancellation‘, especially after turning down the many unsolicited offers that have come their way. Stuff happens.
Many of the smaller cell phone carriers, referred to in the industry as tier 3s, are always on the auction block. This is why they came to be, so they would receive an offer that is big enough that it can’t be turned down. They know that at some point the bigger cell phone carriers (tier 1s and 2s) will take over their coverage areas if they can’t take over the companies that have big footprints in a desirable market.
I’d Rather be a Stockholder Than a Lease Owner
Bottom line is, it is probably safer to be a stockholder in a small prosperous cell phone carrier than being a cell site lease owner. The problem comes when the acquired tier 3 carrier’s lease’s coverage becomes redundant and many of their cell sites are already covered by the purchaser. That’s when we hear the ‘T’ or the ‘C’ word.
There Can Be a Silver Lining Scenario: Lease Value
When it comes to the value of cell tower leases, the size of the company makes a tremendous difference. To use a familiar market indicator, the monthly multiple, differ depending on the size of the company and the chance of it being purchased or merged with (each creates possible redundancies).
The tier 1s (ones) such as AT&T and Verizon command the highest cash value if you wish to sell your cell lease. One of these carrier’s leases can command a monthly multiple of 160 to 180 times the monthly rent, depending on the other terms of the lease. A $2,000 monthly rent payment could be between $320,000 to $360,000 cash value. A tier 2 lease maybe valued between 130 to 160 the monthly rent and a tier 3 lease, 90 to to 120 times monthly rent.
So the silver lining scenario is that your tier 3 carrier is taken over by a tier 1 carrier. You just went from a high value of 120 times monthly rent to as much as 180 times monthly rent. A big raise, $120,000, as long as your particular site is not already covered by that tier 1 company and your lease value goes to ‘$0’. Sounds a little big like gambling </sarc>.
Andrew G Kellerman’s expertise is in the telecom industry, dealing with many Fortune 500 companies. Background in stocks, bonds, commodities,and options as VP for Thomson KcKinnon Securities, with over 30+ years in all aspects of real estate and mortgages.
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