- SBA Communications shares jumped on reports that potential suitors are circling – but an analyst said a $250/share deal could reset valuations lower across the sector
- All three public tower companies are involved in disputes with EchoStar while weak 5G returns and muted 6G outlook weigh on growth
- Mid-band auctions could help, but higher-frequency spectrum and small-cell shifts could pose risks
Shares of all three publicly traded tower companies were up this week after reports that infrastructure investment firms KKR and Brookfield are considering a possible acquisition of SBA Communications.
Bloomberg first reported last week that Boca Raton, Florida-based SBA Communications is exploring options that include a potential sale. TMT Finance followed up this week with a report that both KKR and Brookfield are among the funds that have shown an interest in buying the tower company, reportedly at a $250/share valuation.
But New Street Research analyst David Barden said that kind of valuation sounds too cheap.
“Even his toughest competitors believe SBA Chairman Jeff Stoops is one of the sharpest tools in the tower-land shed,” he wrote in a report for investors. “If this company transacts at $250 and a sub-21x EBITDA multiple, it will frankly doom the industry to that ceiling for a meaningful time.”
SBA didn’t respond to a request for comment. The company’s shares were trading around $220.04 at mid-day today.
EchoStar fallout for tower companies
All three publicly traded tower companies – American Tower and Crown Castle being the other two – are embroiled in lawsuits with EchoStar’s Dish Wireless, which claims a “force majeure” event means it doesn’t have to pay its tower company vendors.
Other uncertainties loom. 5G has largely been a bust for the carriers and 6G doesn’t appear to offer an upgrade cycle that’s going to persuade carriers to spend a lot on cap ex and pull infrastructure vendors out of the doldrums. That would have a spillover effect on towers.
Spectrum actions historically are good for towers, and the upper C-band auction will bring more mid-band spectrum to market. But farther out, some of the spectrum bands that are targeted for future auctions are higher frequency bands than what the industry typically deploys.
That could be good for towers, but it also could mean that spectrum will propagate so poorly that it won’t be deployed as broadly as other bands or the deployments could skew more toward small cells, MoffettNathanson analyst Nick Del Deo wrote in an April 6 report for investors.
On the flip side, if Starlink were to try to offer a full-fledged mobile service, it would presumably need to augment its satellite-driven offering with terrestrial deployments. “We don’t see that as likely, but a press release to that effect would make it a great day to own towers,” Del Deo said.
Potential bidders for SBA
Before the TMT report came out citing KKR and Brookfield as interested parties, Del Deo said Vertical Bridge was a leading candidate to buy SBA. But he also cited the large infrastructure funds as potential acquirers. Firms like Blackrock, Brookfield, Macquarie, KKR, EQT and Stonepeak also are in this tier of investors.
“The potential to diversify portfolios that are increasingly weighted toward data centers could be attractive, in addition to the standalone appeal of SBA,” he said. “These players bring tremendous capital resources, fundraising abilities, expertise with respect to deal structuring and industry know-how to bear (almost all have experience with tower investments.”
According to MoffettNathanson, privately held Vertical Bridge has 18,000 towers in the U.S., more than SBA, which has an estimated 17,394 domestic towers. American Tower is by far the biggest, with about 41,800 towers in North America, followed by Crown Castle, which has about 39,800.
“I would think another tower company would be interested,” said Recon Analytics analyst Daryl Schoolar of potential bidders for SBA. “Tower companies like the whole volume game. The more Tower Company A can sell to all of AT&T’s footprint and all of Verizon’s footprint, the better off they are than having it broken up.”
But Ken Schmidt, president of Steel in the Air, doubts the other public tower companies will make a run. “It’s not as accretive to them to add towers at similar valuations as their own assets,” he told Fierce.
“Vertical Bridge is a possible buyer, but they have been pretty conservative about buying towers lately, and I am not sure they will pay what KKR or Brookfield would,” he said.
It’s unknown what kind of deal will transpire and Del Deo isn’t putting odds on a deal taking place, other than to say: “There would appear to be a real chance that SBA transacts.”