Filed under: Wireless Telecommunication Services
In Jun-98 a group of investors led by Spectrum Equity Investors (14.3%) and Providence Equity Partners (14.3%) organized American Cellular Corporation (‘ACC’) to acquire U.S. rural and suburban wireless communication operator PriCellular Corporation (‘PriCellular’) from a group of controlling shareholders including the Price Family, AT&T Wireless and Thomas H. Lee Company through a public tender offer at US$14 for every common share valuing the equity at US$811m (57.91m fully diluted shares outstanding). Including US$442m net debt (adjusted for exercise of options, warrants and conversion rights) and after deducting US$50m in non-consolidated associates at book value) the enterprise value for the deal amounted to US$1.2bn. This implied the following multiples for 1997: 665% of revenues (US$181m, 0.31x net capital turnover including cellular licenses), 18.2x EBITDA (US$66.0m, 36.5% margin), 32.2x EBITA (US$37.2m – after amortization of cellular licenses -, 20.6% margin), 2.1x net capital employed (US$583m, including US$493m in cellular licenses) and US$263 per POP (= population of serviced area, 5.1m at 31-Dec-97) and US$4,800 per subscriber (250,441 at 31-Dec-97).
ACC was financed with US$350m in equity from the consortium, US$850m in senior secured term loan facilities (at LIBOR +250bp to +300bp) and a US$150m revolving credit commitment and by issuing US$285m aggregate principal amount of 10 ½% unsecured senior notes due 2008.
Besides Spectrum Equity Investors (14.3%) and Providence Equity Partenrs (14.3%), other equity investors in the transaction included: Sandler Investment Partners (12.9%); Tandem Wireless Investments (11.4%); Triumph Partners (8.6%); First Union Capital Partners (7.1%); HarbourVest Partners (5.7%); Trident Capital Management (5.7%); KECALP (an affiliate of Merrill Lynch); Toronto Dominion Investments (an affiliate of TD Securities (USA) Inc.); SG Capital Partners (an affiliate of Societe Generale), and Generation Capital Partners.
Subsequent to the acquisition the penetration rate increased from 4.8% at 30-Sep-97 to 8.13% at 30-Sep-99, quarterly revenues by 61% (Q3’99 vs. Q3’97) and the quarterly EBITDA margin by 22.5%-points (Q3’99 vs. Q3’97) to 63.2%.
In Oct-99 an agreement was reached to sell ACC to a newly-formed 50/50 joint venture between Dobson Communications Corporation (‘Dobson’) and AT&T Wireless Systems, Inc (‘AT&T Wireless’) in a transaction that valued the equity at US$1.25bn. Including US$1.15bn in net debt at 30-Sep-99 the enterprise value amounted to US$2.41bn.This implied the following multiples for the 12 months to 30-Sep-99: 835% of sales (US$288m, x net capital employed excluding goodwill), 15.4x EBITDA (US$156.1m, 54.2%), US$492 per POP (4.89m at 30-Sep-99), US$6,057 per subscriber (397,900 at 30-Sep-99).
On 30-Jun-02 ACC breached the financial covenant on the senior credit falicity as the total indebtedness to operating cash flow leverage ratio exceeded 8.75 to 1.00. In Aug-03 a financial restructuring was completed as almost all of the US$700m in outstanding ACC 9.5% senior subordinated notes due 2009 were exchanged for a total of 43.9m shares of Dobson’s Class A common stock (trading at US$6.84 at time of acquisition representing a value of US$300m, 38% of class post-transaction), US$121.8m in convertible preferred stock and US$48.7m in cash for a recovery of approximately 68% of face value of the notes. The outstanding senior debt was repayed with the proceeds from the sale of US$900m in 10% senior notes due 2011. The enterprisve value for the transaction therefor amounted to US$1.37bn (300% of LTM revenues (US$460m), 7.0x LTM EBITDA (US$196m, 42.5% margin), US$274 per POP (5.0m at 30-Jun-03), and US$1970 per subscriber.
As AT&T Wireless ‘abandonded their interest in, and thereby withdrew from, ACC Acquisition LLC, the parent company of ACC’, in other words it was left holding the sack.
