Crown Castle Sticks to Fiber Diet With $7.1B Lightower Deal

Crown Castle is to splash $7.1 billion in cash on a takeover of Lightower, which owns fiber networks in some of the biggest US markets, in anticipation of soaring demand for small cell services.

The move, announced late Tuesday, will bring Crown Castle International Corp. (NYSE: CCI) about 32,000 route miles of fiber that Lightower Fiber Networks owns in the northeast of the US, including the cities of Boston, New York and Philadelphia.

That will more than double Crown Castle's fiber footprint to as much as 60,000 route miles, making it one of the country's biggest owners of metro fiber.

Crown Castle's plan is to combine those fiber assets with its small cell platform to meet new service demands from mobile operators.

Small cells are usually aimed at providing wireless connectivity in hotspots such as airports and shopping malls where there is a concentration of customers and a need for more bandwidth.

In the US, in particular, several operators expect to use small cells in conjunction with very high frequency spectrum as they roll out 5G networks in the next few years. (See Verizon Buys Straight Path for $3.1B, Beating AT&T to 5G Spectrum.)

But such deployments will place huge demands on the backhaul networks linked to cell sites, which explains Crown Castle's determination to acquire more fiber.

Crown Castle said the takeover would add between $850 million and $870 million to its site rental revenues in the first full year after its completion, as well as between $510 million and $530 million in adjusted EBITDA.

While the value of the takeover equals about 13.5 times Lightower's adjusted EBITDA, Crown Castle said it would be able to maintain its investment-grade credit metrics following a transaction.

It says it will use cash on hand as well as equity and debt financing to fund the acquisition, and has received financing commitments totaling $7.1 billion for a new unsecured bridge facility from Morgan Stanley and BofA Merill Lynch.

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The deal was announced just before Crown Castle reported an 8% year-on-year increase in revenues for its second quarter, to $869 million, and a 30% rise in net income, to $112 million.

The company, which rents tower sites and capacity to mobile operators, has flourished in recent quarters thanks to soaring demand for wireless data connectivity.

"We had another terrific quarter exceeding our previously provided outlook," said Jay Brown, Crown Castle's CEO, in a company statement. "We believe we are well positioned to capitalize on the long-term positive fundamentals for mobile data demand growth."

Growth has enabled the company to keep borrowing despite a relatively high ratio of net debt to EBITDA, which stood at roughly 5.8 in the second quarter.

The move for Lightower follows Crown Castle's takeover of another fiber owner called Wilcon in April this year. (See Crown Castle Adds Fiber Muscle With $600M Wilcon Buy.)

Crown Castle paid $600 million for that business, which gave it about 1,900 route miles in Los Angeles and San Diego.

A few months earlier it had paid $1.5 billion for an operator called FiberNet, with about 11,500 route miles of fiber in Florida and Texas. (See Small Cell Connectivity Drives $1.5B Acquisition.)

The company's first big foray into fiber came in 2015 when it announced a $1 billion takeover of Sunesys, which then owned 10,000 route miles of fiber in various metropolitan markets. (See Crown Castle Bids $1B for Sunesys Fiber Assets.)

The US market has seen a number of other fiber deals in the last couple of years driven largely by expectations that mobile data demand will continue to put pressure on backhaul resources.

— Iain Morris, , News Editor, Light Reading