Telecom Deals Prod Forstmann Little Pace –

Picking up speed in its deal-making pace, Forstmann Little & Co. this month agreed to invest $850 million in broadband communications provider Nextlink Communications Inc., which is headed by Dan Akerson, a former Forstmann Little general partner.

The transaction marks the firm’s fourth investment in a communications-related company in three months, drawing down more than $1.9 billion in total equity.

The convertible preferred stock investment in Nextlink resembles Forstmann Little’s $1 billion convertible preferred stock commitment in October to McLeod USA Inc., a communications provider that caters to smaller cities than does Nextlink.

With the investments in Nextlink and McLeodUSA, Forstmann Little joins the growing ranks of LBO groups placing their bets on wireless broadband communications companies. Just last month, Hicks, Muse, Tate & Furst teamed up with software giant Microsoft Corp. and several other private equity firms to invest $500 million in Teligent, a Vienna, Va.-based wireless communications provider. And in September, Texas Pacific Group and Joseph, Littlejohn & Levy joined with a group of venture capital firms to acquire NextWave Telecom Inc., which owns 95 PCS licenses and plans on broadcasting broadband data services over the airwaves.

Nextlink provides broadband communications services to businesses over fiber optic and broadband wireless facilities. Established in 1994, it is the largest holder of broadband fixed-wireless spectrum in North America, with licenses covering 95% of the population in the 30 largest U.S. cities, including Los Angeles, New York and Houston.

The closing of this deal, which is expected in early 2000, will give Forstmann Little ownership in four communications-related companies, including Nextlink; McLeod- USA; Intelisys Electronic Commerce, an Internet-based provider of procurement services for businesses; and Webley Systems Inc., a telephone messaging system.

The Nextlink preferred stock has a conversion price of $63.25 per share and will pay a $3.75 dividend. Should the transaction close, Forstmann Little will own 8% of Nextlink fully diluted shares.

Forstmann Little’s investment will be used to expand the company’s networks and services and introduce new technologies, said Akerson, Nextlink’s chief executive, in a conference call.

Nextlink reported approximately $140 million in revenue for 1998, and revenue has been increasing more than 20% each quarter. However, the company has yet to produce positive cash flow and reported a third quarter cash flow loss of $55.6 million on sales of approximately $75 million.

Just before signing the deal with Forstmann Little, Nextlink announced an agreement to acquire Eagle River Investments’ 50% ownership in Internext LLC for $220 million of Nextlink’s common stock. Should this deal close, Nextlink will acquire exclusive rights to use certain fibers and a conduit throughout a 16,000 mile high-speed, Internet-protocol-centric, fiber optic backbone network that will connect over 50 cities in the U.S. and Canada. The network is expected to be completed in 2001.

Akerson said in the call that other firms were interested in investing in Nextlink, but he took the deal to Forstmann Little because of his first-hand knowledge of the way it works. He was a general partner at the firm in the mid-90s before he became associated with Nextlink.

Until recently, Forstmann Little has been slow to invest its $3.2 billion sixth fund, which closed in 1997 (BUYOUTS May 26, 1997, p. 1). In fact, the firm closed just one other deal-the $400 million recapitalization of Yankee Candle Co. in 1998 (BUYOUTS April 20, 1998, p. 10)-before the Webley investment last month, which was soon followed by McLeodUSA and Intelysis.

Partners at the firm could not be reached for comment.