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American Tower's $3.5B InSite purchase highlights sky-high tower values

American Tower announced it will purchase InSite Wireless Group – which owns around 1,400 cell towers in the US – for a hefty $3.5 billion.

The analysts at New Street Research pointed out that the transaction is worth around 31x of InSite's earnings before interest, taxes, depreciation and amortization (EBITDA).

"The multiple paid came with a high sticker shock," the analysts wrote in a note to investors Thursday. "It would be easy to make the case that American Tower overpaid; however, it is important to recognize that infrastructure multiples have inflated significantly over the past two years, and costs of capital are at or near all-time lows."

The financial analysts at Raymond James echoed that positive outlook, calling American Tower's business "the BBE (Best Business Ever)."

Cell tower companies like American Tower are expected to continue to reap revenues from companies like T-Mobile and Verizon as 5G hits the mainstream and mobile users increasingly conduct their digital lives over their smartphones and other wireless devices. And though the overall outlook for US tower companies like American Tower continues to shift, many expect the space to remain a growth area for investors in the years to come.

"We see significant upside in this space over the next several years," wrote the analysts at Raymond James.

American Tower, for its part, said it will gain a total of 3,000 "communications sites" via its purchase of InSite, including 1,400 towers and 70 distributed antenna system (DAS) networks in the US and 200 towers in Canada. American Tower added that InSite controls "more than 600 land parcels under communications sites as well as approximately 400 rooftop sites."

Despite the fact that just two thirds of InSite's revenues come from standard macro cell towers, the analysts at New Street said they expect the transaction will still be 1% accretive to American Tower's 2021 AFFO (adjusted funds from operations) per share.

American Tower isn't the only company on the hunt for tower purchases. For example, Phoenix Tower recently purchased 197 cell towers from Tower Ventures, and Melody Investment Advisors recently closed on the purchase of 1,150 cell towers from CTI Towers shortly after acquiring roughly 500 towers from Uniti Towers for around $220 million.

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Mike Dano, Editorial Director, 5G & Mobile Strategies, Light Reading | @mikeddano

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