Communications Wrap: LBOs Move Slowly But Surely

While the overall number of leveraged buyouts in communications companies continue to sag, the past few months have actually seen a bit of action. Moreover, a handful of new funds are sprouting up with plans to take advantage of a relatively-depressed market.

Most notably, Theodore Forstmann Little & Co. recently committed $2 billion in the public-to-private transaction of Citadel Communications, which is an owner of radio stations in mid-sized markets throughout the U.S.

Soon after agreeing to be taken private, Citadel decided to divest itself of four radio properties including WFPG-FM, WPUR-FM WFPG-AM and WKOE-FM, whereupon the stations were swiftly snagged by private equity firms UBS Capital Americas and Mercury Capital Partners. The transaction, which is valued at about $19.4 million, was completed through a new partnership dubbed Millennium Radio Group LLC, which was formed earlier this year.

Chicago-based Frontenac Co. recently led a $435 million combined debt and equity commitment to Sigma Networks, an independent provider of metropolitan area interconnect networks. Frontenac, which committed $30 million to the transaction, led a $145 million private equity investment group which included Benchmark Capital, Oak Investment Partners, Technology Crossover Ventures, Capital Research, Salomon Smith Barney, Charter Growth Capital, Epoch Partners, Comdisco and Sand Hill Partners. San Jose, Calif.- based Sigma Networks – through its Metropolitan Area Interconnect Network (MAIN) – establishes a free trade zone between network providers and bandwidth purchasers, which results in an open marketplace of carrier supplies and bandwidth types.

Also, Marsh & McLennan Capital Communications & Information Fund (C&I Fund) recently committed an undisclosed amount in Verance Corp., an audio watermarking technology company that services the entertainment, media and wireless communications industries. The $80 million C&I Fund was formed last April by Marsh & McLennan Capital Inc. and Mercer Management Consulting. Marsh & McLennan serves as the sole limited partner of the fund, which is co-managed by Partner Robi Blumenstein, a and Principal Bob Fox and is focused on communications and information companies.

“The company does a very good job of investing in watermarking companies, which can be used in multiple markets such as music and e-commerce,” Fox said. “There is an application of it in tracking advertising and other over-the-air-content in radio and broadcast medium. And there is also the third business, which is still in the research and development phase, of using it to carry information over wireless networks.”

Other partnerships or funds formed to make investments in the communications sector include The Blackstone Group?s new $4 billion offering. Like Fund III, this new vehicle will match communications investments with the Blackstone Communications Fund, which closed at the end of last year on $2 billion. Madison Dearborn Partners also joined the billion dollar plus club with its latest effort Madison Dearborn Capital Partners IV, which was capped at $4 billion. Fund IV will focus on investing in the manufacturing and communications industries, said Managing Director David Mosher. “Half of our business is buyouts and the other half is growth equity investments, particularly early-stage investments in the communications industry,” he said. “We were one of the first institutional investors in Nextel Communications as well as early investors in Omnipoint.”

And, not to be left out, Boston-based Abry Partners Inc. last month held a final close on Abry Partners Fund IV LP, which was targeted at $750 million. The firm plans to use the fund to invest in 12 to 15 media and communications companies such as broadcast and cable television, radio, print publications, outdoor signs and coupon publishing.

On the international front, Washington, D.C.-based firm Darby Overseas Investments Ltd. recently launched its second direct investment private equity fund focused on Latin America with a target of $250 million. The fund will take both majority and minority stakes in businesses in consumer-related industries, retail, and communications technology among other industries. Julio Lastres, a managing director of the fund at Darby, said the fund will look to invest in established companies, but not necessarily late-stage companies.

Hung Tran can be contacted at Story Feedback.