The Seller’s Toolkit: Proactive Steps to Control the Tower Due Diligence Process
Over the last 20+ years, SteelTree Partners has advised small and mid-size tower companies on the sale of thousands of towers in North and South America. Each of these sales starts off the same way- with a bid process where potential buyers vie to purchase the towers. Typically, sellers focus solely on the highest offer, sometimes ignoring what happens during the due diligence period, when the buyer can inspect the towers and subsequently demand a purchase price adjustment. This has led to an increasing number of cases where the actual sale price is significantly lower than the accepted offer price.
The Inherent Conflict of Interest: How Inspectors Inflate Costs and Lower the Sale Price
We have been involved in several transactions where the buyer’s inspection firm’s structural reports were concerning, warning of imminent failure, leading the buyer to request a significant purchase price adjustment without challenging the findings, even though, in one case, the seller provided multiple passing reports. This is the classic flaw in how buyers conduct due diligence: the buyer chooses the inspector, who has an incentive to find and bid on problems, while the seller is left scrambling to defend the value of their assets.
In most states, commercial and residential inspectors are prohibited from performing repairs on defects they identify. They also cannot accept referral fees or kickbacks for conducting inspections. In the tower industry, engineering firms that carry out inspections also bid on repair projects, often submitting rushed, inflated bids designed to cover the worst-case scenario. These “bids” are frequently made before the plans for specific repairs are finished. In some cases, the tower company and the inspector know they will re-bid the work after the closing, based on site-specific plans. The tower buyer ultimately benefits from the lower, site-specific post-closing repair bid, but they use the pre-closing, inflated contingency bid to justify the purchase price reduction—effectively profiting from the inflated cost estimate
When inspectors rush or make mistakes, the impact on the seller is multiplied. We have observed simple errors by the inspection company, up to egregious failures, such as completely overlooking completed structural modifications on the tower during routine tower mapping. To avoid giving away value needlessly, sellers must take control of the due diligence process. Here are five strategies we are now implementing for our clients to balance the playing field and mitigate the risk of a costly due diligence dispute, which may put a transaction at risk:
Demand Total Transparency
When a claim is made, demand the evidence. Don’t settle for a summary cell tower inspection report from the buyer. We will now push for requirements in purchase and sale agreements that require the buyer to provide all underlying documentation—including inspection reports, tower mappings, and structural analysis models—within 5 days of receipt. If you can’t audit their inputs, you can’t dispute their conclusions.
Neutralize Conflict of Interest
If an inspection firm’s business model inherently incentivizes finding flaws and bidding high on repairs, they are a threat to your valuation. We are not suggesting that firms intentionally identify issues with towers – just that their incentives may not be aligned when they also bid on repair and maintenance work while submitting the inspections.
We now make it part of the bid process to ask which firm the buyer plans to use for inspections. If a bidder insists on using a high-conflict inspection firm, their accepted bid must be significantly higher than competing offers to offset the anticipated risk and due diligence adjustment. In other words, both the seller and buyer should agree on who will conduct inspections, or the seller must be compensated for the risk.. In other words, both the seller and buyer should agree on who will conduct inspections.
Establish the Right to Rebut
The seller must have the contractual right to challenge flawed findings with their own expert analysis. In the future, we will add to the purchase agreement a contractual right for our own engineers to review and, if necessary, provide our own structural analysis to rebut the inspector’s findings- especially if the engineering firm that did the original structural analyses is available.
We rely on trusted, honest experts to quickly audit these reports. The Turris Group (https://turris-group.com/) was highly responsive and instrumental in quickly illustrating flaws in the competing analysis, especially on complex tall towers. We also highly recommend Armor Tower (www.ArmorTower.com) for their thoroughness and ability to execute rushed, difficult analyses on uncommon tower types. Both firms prioritize accuracy over expediency.
Conduct Your Own Inspections and Structural Analyses Prior to the Offering to Pre-Identify Issues
If you don’t regularly maintain your towers or have inspections done, it probably makes sense to pay the cost upfront to have your own inspections completed by a trusted vendor. You might consider having your own Phase 1 Environmental Assessment completed to verify there are no new environmental issues that could be a concern. In some cases, buyers will even reimburse the costs of these inspections if they were conducted recently enough.
Self-Perform Repairs to Control Costs
The highest financial pressure comes from the buyer’s initial high-ball repair quote. Remove this leverage by including a contractual mechanism that allows the seller to self-perform (or subcontract) any necessary, mutually agreed-upon repair work. Establish realistic timelines in advance to complete the work, accounting for the time of year and issues encountered on the towers.
This guarantees the final price adjustment is based on the actual, verifiable cost of the fix, not the buyer’s inflated contingency bids. It puts the seller in charge of both quality and cost, protecting the asset’s true value through closing. To ensure the adjustment is based on actual cost, any required price adjustment should be structured as an escrowed holdback on the transaction. Any surplus funds remaining after the mutually agreed-upon repairs are completed (within a 6-12 month window) must be refunded to the seller..
By proactively incorporating these five strategies, tower sellers can transform the Tower due diligence period into a fair process, successfully protecting the hard-earned value and stability of their Tower portfolio valuation. And tower companies will get the assets they thought they were getting, or a fair reduction in the purchase price.