Cell phone tower operator SBA Communication Corp. (SBAC) has launched its operations in Brazil by acquiring 800 wireless towers of Vivo S.A., a subsidiary of Telefonica Brazil S.A. (VIV). With this acquisition, SBA Communications became the second U.S. independent tower operator after American Tower Corp (AMT) to enter the Brazilian market. Per the deal, the Florida-based tower company will pay $178 million to Vivo S.A. to acquire the latter's 800 tower sites. SBA Communication will use its existing cash in hand and revolving credit facility to finance the transaction.
According to the company, the acquisition will be beneficial as it will provide them with a tower footprint spread across Brazil along with tower leasing agreement with the major Brazilian wireless carrier. SBA Communication expects to generate $9.3-11.3 million in cash flow in 2013 from the acquisition.
On the other hand, Madrid-based Telefonica has been struggling with rising debt amid Spain's macroeconomic concern. As a result, it has been disposing off its non-core assets and getting rid of the tower portfolio.
SBA Communication has been playing the catch up game behind rival American Tower and Crown Castle International (CCI) for quite some time as both have expanded their tower portfolio through various acquisitions. Crown Castle has opted for the inorganic growth route by acquiring T-Mobile USA's 7100 broadcast towers while American Corp picked the inorganic route by purchasing towers in India, Ghana and Brazil.
The acquisition has come at a very good time for SBA Communications as tower companies are benefiting from the low interest rate scenario in the U.S. which in turn is aiding them to ramp up acquisitions in the country and abroad.
With a Brazilian population base of 190 million and growing independent tower industry, the acquisition will provide a great opportunity for the company to expand in an international market. Additionally, the need to improve the network infrastructure before the 2014 World Cup and 2016 Summer Olympics offers SBA Communication the capital spending opportunity in a high growth market like Brazil.
SBA Communication retains a Zacks #3 Rank, implying a short-term Hold rating.