Charterhouse Leads $180M Telecom Tower Investment –

Telecommunication deals remain out of favor with most buyouts shops, but not all. Charterhouse Group just made another investment in the troubled sector.

The firm continues to take a contrarian’s view by teaming with Jerry Kent, the newly named CEO with AAT Communications Corp., a St. Louis-based owner and operator of more than 7,500 wireless communications sites, commonly known as towers.

“It’s like any other market-you find pockets within the telecommunications sector that have attributes that are very attractive and may provide highly predictable cash flows,” said David Hoffman, a partner with Charterhouse. “There are people who say telecom is fraught with risk, but you have to have a ground view, not just a view from 10,000 feet above the ground.” To be fair, Charterhouse has played it careful in a sector still reeling from over-zealous investors in the late 1990s. The firm sticks to its knitting by investing in five general sectors, including sub-sectors of the telecom industry, namely tower and site management, cable television, select areas of wireless consulting and network infrastructure services.

According to Thomas Dircks, a Charterhouse managing director, the firm’s focus remains on identifying predictable earnings through consistent subscriber bases, similar to the cash flows from its former cable TV portfolio companies, but with a caveat. “With towers [for the telecom wireless industry], most contracts are either five-year or 10-year contracts, which prove to be a very strong underlying attribute,” he said, in comparing the lengthy tower contracts to the monthly contracts subscribers adhere to in the cable TV business.

The entire Charterhouse investment in AAT to date is $150 million, and while the firm provided the bulk of the recent financing, approximately $85 million was raised from three new and separate entities: Sandler Capital Management, an investment advisor and manager of hedge and private equity funds; WallerSutton 2000, a private equity firm focused on media and communications investments; and The Oklahoma Publishing Co., a holding company with a portfolio that includes The Grand Ole Opry, Midwestern newspaper chains and sports management firms.

Charterhouse is supporting Kent and his management team, who were tapped to run AAT in 2002. This is the fourth investment in which Charterhouse has teamed with Kent. The prior partnerships reside in the cable TV sector: Cencom Cable, Charter Communications and CableMaxx.

“We like to find the jockey before we buy the horse,” said Hoffman, in reference to Charterhouse’s strategy of lining up managerial talent prior to targeting an investment sector of specific investment. “The outgrowth of [this] program has been our ability to invest on numerous occasions with serial entrepreneurs. It has become second nature to us and we have multiple teams who have returned to us after successful investments.”

Charterhouse’s investment was made through Charterhouse Equity Partners III; a $1 billion fund raised in 1998. The AAT investment marks the firm’s largest equity investment to date, besting the $90 million provided to Charter Communications in the 1990s.

The firm is currently raising its fourth fund, which has a $750 million target. Limited partners include Slough Estates USA, newcomer NIB, and The State of Michigan, which re-upped for what a source familiar with the fund called “a sizable investment.” Thus far, the fund has had one close for approximately $320 million and plans to hold a final close in 2004. Charterhouse declined to comment on the fund or its fund raising status.