Focus on acquisition of passive telecommunications infrastructure in the Andean Region

The acquisition of passive telecommunications infrastructure (such as wireless telecommunications towers and dark fiber) requires some level of experience around the operation of the asset to understand the key elements that are considered to evaluate its acquisition.

To complicate this even more, there are substantial differences when acquiring passive telecommunications infrastructure from Peru to Colombia, or Chile to Brazil. Nevertheless, below are the three main recommendations that any counsel (internal and external) should consider when working in the Andean region on an M&A transaction on this type of asset. They must conduct thorough due diligence by understanding the assets, its construction date, applicable law, agreements with existing tenants, agreements with landlords, just to mention a few.

Effectuating precise legal due diligence allows counsel to provide quick and valuable advice to the transaction team. As a transaction develops, variations around commercial matters have different impacts on legal matters.

Without a complete legal understanding of the asset, counsel may not be able to recommend certain flexibility on key terms and conditions of the transaction documents, and these may be the same that may allow the company/client to be successful in the process. Permits and similar authorisations, for instance, are not as important for old infrastructure in Peru as it is for Chile. Next, it is important to consider strategic R&W and indemnity. With the knowledge provided by the performed diligence, counsel is in a better position to negotiate those reps and warranties that are material for the business, the venue or the particular asset.

Typically, the list of R&W on tower acquisition deals can get very specific and long, creating a hassle for the seller to try to accommodate the buyer’s request. On a competitive bid, a well-educated buyer will take advantage of this position and probably (commercially) prevail among other bidders. For example, asking for traditional Colombian reps regarding landlords and lease agreements may be completely worthless if applied to a Peruvian acquisition.

The same will apply to the indemnity package, which can be substantially lighter and tailored to the business activity if counsel understands the asset exposure and possible claims. The level of detail to litigation indemnifications in Peru will not be as material when dealing in Chile. Asking for too much typically ends up with long-lasting and deteriorating negotiation of indemnification provisions that are, in most cases, not required for the asset.

Lastly, if the acquisition requires financing, there are certain material items to consider. Debt providers usually are not familiarised with infrastructure telecom assets and tend to over collateralize their position. A good security package should try to provide quick control of the business to the lender in the event of default, without jeopardising the operation of the asset or the business.

A key element is attempting to avoid a pledge over the assets, as such are usually exchanged as part of acquisition agreement or modified over time. If a pledge is materially necessary, the buyer should have enough flexibility to dispose of part of the asset without a waiver from lenders. Pledge on the equity of operating entities, corporate parent guaranties and pledges on bank accounts are wise and sufficient options of collateral that are flexible enough for the operation and administration of passive telecommunications infrastructure assets. Although applicable security law changes among countries, in principle the borrower is generally able to find and provide functional collateral.