Mergers & Acquisitions: Private Equity Acquiring Control Of Kansas Broadband Provider Ideatek Telcom, LLC

December 9, 2022 – The FCC’s Wireline Competition Bureau is seeking public comment on a Section 214 application filed by Daniel P. Friesen and IdeaTek Telcom, LLC, requesting consent to transfer control of IdeaTek.[1] Comments are due on or before December 23, 2022. Reply comments are due December 30, 2022.

The transaction triggering the transfer of control involves Peppertree Capital Fund IX QP, LP’s conversion of a prior significant debt investment into equity ownership. Peppertree Capital Fund IX will acquire 47.3% of the membership units of IdeaTek, resulting in the majority member, Mr. Friesen, being reduced to a 24.46% ownership of the company.[2]

IdeaTek, a Kansas LLC and Kansas CLEC, provides competitive voice and broadband services via fiber and fixed wireless to approximately 15,000 subscribers in Kansas. IdeaTek has been designated as an eligible telecommunications carrier (ETC) in areas where it receives Connect America Fund (CAF) Phase II support (6,186,881.60 to serve 2,490 locations in Kansas) and Rural Digital Opportunity Fund (RDOF) Phase I support ($23,590.60 to serve 89 locations in Kansas). IdeaTek has completed its CAF Phase II network deployment to 76% of the 2,490 required locations. IdeaTek has received over $14 million in Kansas broadband grants in the last few years.[3]

As explained in the application, Daniel Friesen, a U.S. citizen, currently owns 51.25% of IdeaTek through IdeaTek Equity Group, LLC and 1.96% individually (53.21% total). He is the sole manager of the LLC. Jerrod Reimer, a U.S. citizen, owns 13.15% of IdeaTek through IdeaTek Equity Group and 0.38% individually (13.54% total).

Pursuant to a Convertible Secured Promissory Note and a Convertible Note Purchase Agreement, Peppertree Capital Fund IX, LP, a Delaware limited partnership, Peppertree Capital Fund IX QP, LP, a Delaware limited partnership, and Peppertree Capital FIX Co-Investors, LLC, an Ohio limited liability company, made a significant debt investment in IdeaTek and acquired the right to convert its debt into ownership of up to a total of 49.5% in IdeaTek, subject to FCC prior consent to a transfer of control of IdeaTek’s domestic Section 214 authorization and wireless licenses. The Peppertree Funds are managed by Peppertree Capital Management, Inc., an Ohio corporation. Peppertree Capital Management “is a private equity firm focused on making investments in growing communication infrastructure companies, both in the United States and internationally.”[4]

Upon consummation, the Convertible Note will convert to equity in IdeaTek. Peppertree Capital Fund IX QP, LP will acquire 47.3% of the membership units of IdeaTek, and Mr. Friesen’s ownership interest in IdeaTek will be reduced from 53.21% to 24.46% – triggering a transfer of control of IdeaTek under the FCC’s rules. Mr. Reimer’s interest will fall below 10%. Foreign investors own 3.38% of the equity of Peppertree Capital Fund IX, which equates to a passive and indirect post-conversion 1.6% foreign ownership interest in IdeaTek.[5]

Additionally, once the transaction goes through, the management of IdeaTek will change. After consummation, the company will be managed by a five-person board consisting of Mr. Friesen, Mr. Reimer, and Mr. Daniel Solomon, the company’s CFO, along with two members appointed by Peppertree Capital Management.

IdeaTek’s post-transaction ownership structure from Exhibit A to its transfer of control application.

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[1] Domestic Section 214 Application Filed For The Transfer Of Control Of Ideatek Telcom, LLC; Non-Streamlined Pleading Cycle Established, WC Docket No. 22-391, Public Notice, DA 22-1285 (Dec. 9, 2022), https://docs.fcc.gov/public/attachments/DA-22-1285A1.pdf.

[2] Application For Consent To Transfer Control Of Domestic Section 214 Authorization: Daniel P. Friesen, Transferor, IdeaTek Telcom, LLC, Licensee and Transferee, WC Docket No. 22-391 (Nov. 8, 2022), https://www.fcc.gov/ecfs/document/11081977030301/1.

[3] See, e.g., IdeaTek Wins CARES Funding to Fast-Track Rural Internet Access in Reno County and Surrounding Areas, hutchchamber.com (Oct. 15, 2020), https://www.hutchchamber.com/news-and-media/p/item/30234/ideatek-wins-cares-funding-to-fasttrack-rural-internet-access-in-reno-county-and-surrounding-areas; Governor Laura Kelly Announces Recipients of $10 Million Investment Expanding Broadband Access Across Rural Kansas, Press Release, Office Of Governor Laura Kelly (May 20, 2022), https://www.ksdot.org/Assets/wwwksdotorg/Headquarters/PDF_Files/pressrelease2022/May/Broadband_Release.pdf.

[4] https://www.peppertreecapital.com/. “Peppertree’s core investment thesis is that the demand for data will overwhelm the wireless networks for the foreseeable future. Our mission is to discover ways to capitalize on that thesis, including by investing in companies that own the towers, the wireless spectrum and the fiber networks that make your mobile phone work.” Id.

[5] Supplement to Application for Transfer of Control of Domestic Section 214 Authorization, IdeaTek Telcom, LLC, WC Docket No. 22‐391, at p. 2 (Dec. 12, 2022), https://www.fcc.gov/ecfs/document/1212537119836/1.