Things are looking up

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This article was published 11/03/2011 (5544 days ago), so information in it may no longer be current.

Exchange Income Corp. has built a solid profit machine owning regional airlines and a grab-bag of manufacturing companies.

But the Winnipeg company appears to have found another profitable niche industry — cell phone towers.

The diversified holding company announced a deal Thursday to buy one of the largest cell tower manufacturer/construction companies in North America.

Exchange will pay $79 million for Westower Communications, a private company with annual revenues of about $200 million.

“We have been working on this deal for more than a year,” said Mike Pyle, Exchange Income’s CEO. “We are really excited about this.”

Adding Westower along with its recently acquired Bearskin Airlines (a deal that closed at the end of 2010), Exchange will now generate about $500 million in annual revenue.

The Winnipeg company will pay for Westower using available credit. In addition, 15 per cent of the purchase price will be covered with the issuance of new shares to the vendors.

Westower has 24 regional offices throughout Canada and the United States, three manufacturing facilities in Canada and about 1,000 employees throughout North America.

Formed about seven years ago, Exchange has built up a profitable portfolio of four regional airlines and four other manufacturing companies.

Scott Rattee, an analyst with Stonecap Securities in Toronto, said he was surprised the company did not make another acquisition in the airline business where it has been successful generating strong returns.

“But the more I learned about Westower, the more I saw that it really does align quite well with the rest of the speciality manufacturing group,” Rattee said.

He said Westower matches up with Exchange’s criteria for the companies it buys — they have to be highly specialized, leaders in their segment and produce stable cash flow. It also continues Exchange’s diversification.

Pyle pointed out that investments in mobile communications towers are not necessarily tied to the general dynamics of the economy.

“It operates on the capital cycle of cell phones,” he said. “When the phone companies need to re-invest in new technology, Westower is busy. We are trying to diversify our cash flow stream. So the fact that it operates on a different cycle than our other manufactures is quite attractive.”

He noted that Westower had a busy year in 2009 as telcos invested in G3 and G4 wireless networks and new companies entered the market. “And 2009 was one of the worst years on earth for the economy,” Pyle said.

Rattee said Exchange did not overpay for Westower, showing that it is sticking to its disciplined approach to acquisitions.

In addition, the Winnipeg company has locked up management to long-term contracts, which was key to the deal, Pyle said.

The company is nominally based in Surrey, B.C., but its Canadian president is in Edmonton and Westower’s CEO, Mike Jarvis, is in Houston.

As well as generating solid cash flow and steady growth for the last few years, Westower is thought to have the potential to grow organically as telcos beef up their networks and also through acquisitions in what is a fractured, decentralized business.

“We are sitting on a large growth potential out there,” Jarvis said. “You want your phone to work everywhere and the phone does not work everywhere.”

Exchange’s shares (TSX:EIF) were up 11 cents Thursday to $19.68, just shy of its 52-week high of $20.25.

martin.cash@freepress.mb.ca