Crown Castle has purchased privately held Wilcon for approximately $600 million from Pamlico Capital and other unit holders, enhancing its dark fiber capabilities in California for small cell backhaul.
Wilcon has built a fiber services arsenal of about 1,900 route miles of fiber, mostly in Los Angeles and San Diego. Upon completing the proposed acquisition, Crown Castle will own or have rights to more than 28,000 route miles of fiber.
Pamlico Capital, a leading middle market private equity firm focused on growth-oriented businesses, was the majority owner of Wilcon.
Crown Castle expects the acquisition to close in the third quarter of 2017.
During the first year of owning Wilcon, the transaction is expected to contribute about $40 million to gross margin and about $10 million of general and administrative expenses. Crown Castle anticipates financing the transaction consistent with maintaining its current investment grade credit metrics, according to a statement.
The Bank Street Group LLC served as exclusive financial adviser, and Alston & Bird LLP served as legal counsel to Wilcon and Pamlico in connection with this transaction.
A complementary footprint
Crown Castle’s acquisition of Wilcon will give the tower company a set of complementary fiber assets in California at a time when wireless operators are ramping up their small cell plans to improve service capabilities in large metro markets.
Jay Brown, CEO of Crown Castle, said in a release that the Wilcon assets will give it more small cell sales targets.
"With its complementary footprint, we expect to benefit in the near-term by leveraging Wilcon's assets to execute on our substantial and growing pipeline of small cells,” Brown said. “Longer-term, we believe Wilcon's well-located assets across the greater Los Angeles and San Diego metro areas, combined with its currently low utilization rate, provide us with a long runway of growth opportunities to pursue small cell deployments for our wireless customers as they seek to improve and enhance their networks to meet growing demand for high-speed, high-capacity wireless services."
Jennifer Fritzsche, senior analyst for Wells Fargo, agreed and said in a research note that the acquisition will put Crown Castle in a position to “capture the incremental dollar of carrier capex spend” from wireless operators.
“The Wilcon fiber footprint offers a unique dense fiber footprint in southern California that is highly complementary to CCI's existing footprint in those markets, in our view,” Fritzsche said. “We note that the biggest cost element of the small cells model is fiber, and the more CCI owns of the underlying asset, the better the long term margin profile.”
Purposeful M&A strategy
Wilcon is the latest in a string of deals Crown Castle has made in recent years to bolster its fiber holdings in key markets.
Crown Castle, which had traditionally been a tower company, has been repositioning itself as a fiber provider focused on the small cell opportunity, purchasing more than five service providers. In just the past two years, Crown Castle purchased three fiber operators: FiberNet, Sunesys and 24/7 Mid-Atlantic.
The company’s purchase of FPL FiberNet gave it about 11,500 route miles of fiber installed and under construction in Florida and Texas, including approximately 6,000 route miles of fiber in top metro markets.
By purchasing Sunesys, the tower provider got access to 10,000 miles of fiber in major metro markets across the United States, including Los Angeles, Philadelphia, Chicago, Atlanta, Silicon Valley and northern New Jersey.
Fritzsche said the Wilcon deal, like others the company has made in recent years, illustrates Crown Castle’s desire to have fiber available in top markets where wireless operators will deploy small cells.
“CCI continues to be acquisitive in the fiber space as this represents the 5th or 6th fiber-focused deal,” Fritzsche said. “We believe this strategy is purposeful and in pursuit of its small cells effort in the top markets across the U.S.”