After SpectraSite

American Tower's $3.1 billion acquisition of SpectraSite, announced in May, gave birth to a new 800-lb. gorilla in the wireless tower industry, and many say it also marked the beginning of M&A season in the space, which will echo the consolidation of wireless carriers. Others say there's little need for financially stable companies to follow American Tower's lead.

“It wouldn't surprise us if there was another major consolidation among the top six [tower] players … in the next three to 12 months,” said Marc Ganzi, CEO of Global Tower Partners, itself one of the top 10. “We've had conversations with other players. Other players are having conversations. [The SpectraSite acquisition is] the obvious first step in what many believe is a wave of consolidation in our sector.”

Especially ripe for an exit, some say, are the small, regional tower companies — like the Midwest's Roberts Tower Co. or Towers of Texas — whose few hundred towers will be dwarfed by American Tower's nearly 23,000, let alone that of the next combination.

“The smaller mom and pops, in some cases, will not survive,” said Stephen Humes, partner with law firm McCarter English, who has represented tower companies. “In some cases, they'll get gobbled up by the big guys.”

Some would say that trend began before the SpectraSite acquisition. Global Tower Partners bought 563 towers from Dobson Communications in March. Global Signal bought 341 towers this spring (with options for more) and is still actively asset shopping. During Crown Castle's most recent earnings call, CEO John Kelly said the company might make “tuck-in types of acquisitions — smaller portfolios … where we already operate substantially.” In the meantime, the company has been buying its OWN towers, as Crown Castle puts it, paying $295 million for Verizon's minority share of more than 2000 East Coast towers. “We're either buying our own towers or we're buying third-party sites,” Chief Financial Officer Ben Moreland said. “I think you'll see us do some of both over time.”

Disagreements over valuations, synergies and management team combinations have stalled previous industry merger talks, Ganzi said, but by far the biggest impediment to consolidation for the past few years has been the debt-laden balance sheets of the tower companies.

“It was very difficult for people to get together [between 2002 and 2004] because the senior bank groups weren't very interested in people getting together at that point,” Ganzi said. “Now the banks are very interested and very invested in the sector and want to see many of us get together.”

For example, Crown Castle paid down much of its debt last year using the $2 billion sale of its U.K. operations. And in fact, the purchase of SpectraSite will do wonders for American Tower's balance sheet, reducing its net debt from more than 6.4 times its EBITDA to somewhere closer to 4.8.

Some question the notion that an American Tower/SpectraSite combination could seriously pressure competitors. Generally speaking, consolidators often apply pricing pressure using amplified economics of scale. But although American Tower expects $30 million to $35 million per year in cost savings, wireless tower sites are typically chosen for their location, not their price, giving the tower sector a certain degree of immunity to pricing pressure.

Assuming the mom-and-pop tower companies didn't overpay for their assets or go too deeply into debt, said Seth Potter, an analyst with Punk, Ziegel & Co., “There's no reason why they shouldn't survive.”

Similarly, Crown Castle — the sector's largest player before the SpectraSite merger — need not acquire another top 10 tower company just because American Tower did, Potter said. For tower companies, the urge to merge may come less from any pressure applied by the sector's new giant and more from the same force pressing down on the giant itself: the buying power wielded by merged mobile carriers. Though wireless carrier consolidation has scarcely begun, tower companies see the handwriting on the wall.

“My suspicion is, at some point, there will be more profound changes in how these mega-carriers go about finding sites,” Ganzi said, “and no doubt at the top of their radar screen is going to be, ‘How do we deal with the top five tower companies?’”

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