Muddy Waters with a new report on the AMT Global Tower deal, below is the full report (its a shorter one).
AMT’s $4.8 billion acquisition of Global Tower Partners is astoundingly expensive – the 2014 EBITDA multiple appears to be about 19x. AMT expects that its net leverage ratio will be 5.8x after the acquisition. Management says that they expect to rapidly de-lever afterward. We question how rapidly AMT can de-lever when it is paying 19x EBITDA.
Listening to the call, we get the impression that management was less than conservative in their modeling assumptions. Management was asked to provide detail on their projected IRR. However, management failed to provide a specific answer, and referred instead to historical practice of looking for high single digit to 10% returns in the US. Management also sounded cagey when discussing the discount rate it used for the DCF. They were asked whether their discount rate factors in a higher cost of debt due to rising rates. The answer was strangely circuitous and equivocal, leading us to believe that they might have used more aggressive assumptions elsewhere in the discount rate or model to offset higher cost of debt assumptions. We believe this management is prone to bend models to their desired outcome.
When a company pays such a high price for an acquisition, we always think about possible ulterior motivations. We have observed that when some companies see organic growth starting to decelerate, they make significant acquisitions (in number, size, or both) because thistends to obscure the organic growth picture. In our report, we opined that US tower industry revenue growth rates are at peak. Might AMT management, which certainly has a record of being less than transparent about its overseas business, be desperate to augment its tower base by 25% in order to obscure organic growth going forward, and to maintain the optics of 20% dividend growth at any cost?
