UPDATED – “Before the pandemic, many viewed broadband service as a tool to effectively stream Netflix and other entertainment services,” Darren Glatt, partner and head of infrastructure investing at Searchlight Capital Partners, told PE Hub. “Now, most realize that high-speed broadband is a critical form of infrastructure to facilitate basic everyday functions, such as business communication, education, telehealth, of course, entertainment and streaming, among other purposes. This is a trend on which we as a firm have been focused for a very long time.”
Indeed, Searchlight Capital Partners has demonstrated that high-speed internet is a priority of its investment strategy by making several forays into the market, including its most recent majority investment in Wecom, a telecommunications company based in Kingman, Arizona, announced earlier in May.
In 2021, the New York-based private equity firm invested $425 million in Mattoon, Illinois-based Consolidated Communications. In the same year, the firm invested in Ashburn, Virginia-based All Points Broadband, which provides fiber-to-the-home broadband service in underserved areas of Virginia, Kentucky and the mid-Atlantic.
In 2020, Searchlight, in partnership with Bothell, Washington-based WaveDivision Capital, completed the acquisition of the operations and assets of Frontier Communications in the Northwest, forming Ziply Fiber.
Ziply made an add-on acquisition earlier this year, acquiring Ptera, an internet provider serving four counties in Washington and Idaho.
Demand for high-speed internet access is still growing, Glatt told PE Hub. Roughly 25 percent of American adults still lack broadband internet service at home, according to the Pew Research Center.
The Biden-Harris Administration also sees broadband as a priority. Earlier this year, the administration funded over $25 billion to an American Rescue Plan to help close the gap in access to high-speed internet.
Last year, Wecom, which has a 60-year history in Arizona, was awarded $10 million in an Arizona Broadband Development grant to bring affordable broadband services to rural Mohave County.
“We identified Arizona as a state that has a great need for investment in high-speed broadband and one in which we could make a difference in closing the digital divide,” Glatt said. “We really rely on a local operator who is familiar with the issues facing consumers and businesses within the state, has a proven track record of building fiber in the state, and wakes up in the morning and goes to sleep at night trying to solve the issue for that state.”
Glatt said that in each of Searchlight’s investments, such as in Virginia with All Points Broadband, or more recently in Arizona with Wecom, Searchlight is connecting hundreds of thousands of consumers and businesses who lack reliable and high-quality broadband service.
“Availability of such service allows [people] to migrate to areas in which real estate is more affordable, the standard of living is more reasonable and the quality of life may be higher,” Glatt added. “As with other forms of infrastructure, the availability of these services has a positive impact on the economic prospects in these communities and creates greater opportunities for employment, commerce and growth.”
When asked about the firm’s exits in telecom and broadband-related investments, a spokesperson for Searchlight said fund returns are “top quartile,” and “broadband realizations have been among the strongest performers.”
Mapping a solution
So how does Searchlight figure out where to invest? Most of its information comes from both public and private data. The Federal Communications Commission publishes maps, which are publicly available, and those maps indicate if communities in each state are adequately served or not. Though the maps aren’t perfect, the FCC is constantly revising them. Searchlight is helping with that process of correcting errors that exist in those maps.
Searchlight also has its own proprietary data, which comes from driving around and looking at the actual infrastructure around an area.
The firm plans on investing in other states in the future, though it declined to reveal specifics.
“We are evaluating other states that have a need and in which we can have a positive impact,” Glatt said.
Editor’s note: Sterling’s investment in Wecom is a majority stake (not a minority stake, as an earlier version of the story said.)