Mergers & Acquisitions: Northleaf Capital Group, Ltd. Acquiring Control of Mercury Wireless Indiana, LLC & Mercury Wireless Kansas, LLC

August 3, 2022 – The FCC’s Wireline Competition Bureau is seeking public comment on a Section 214 application filed by Mercury Holdings, Inc. (Transferor), Mercury Wireless Indiana, LLC (MWI), Mercury Wireless Kansas, LLC (MWK, and together with MWI, Licensees), and NCP Mercury AIV LP (NCP Mercury or Transferee) requesting consent to transfer control of MWK and MWI to NCP Mercury.[1]

The application has been accepted for non-streamlined processing because the proposed transaction involves the exchange and assumption of Universal Service Fund high-cost mechanism obligations. Comments are due on or before August 17, 2022, in WC Docket No. 22-279. Reply comments are due August 24, 2022.

Purpose Of The Transaction? Cash Infusion For Mercury Wireless Operations

In their transfer of control application, the parties explain that the transaction, occurring at the holding company level, “will promote the public interest by providing additional financial resources and support that will allow [Mercury Wireless Indiana, LLC and Mercury Wireless Kansas, LLC], both of whom receive Phase II support from the Connect America Fund and have been awarded support from the Rural Digital Opportunity Fund, to accelerate their deployment of high-speed broadband services to customers in underserved and rural areas in the Midwest, thereby helping to bridge the digital divide.”[2]

The parties have also filed applications for the transfer of FCC authorizations associated with their wireless services (NN-3650-3700 MHz and MG-Microwave Industrial/Business Pool authorizations). Here’s how the parties describe the purpose of the transaction in their FCC Form 603 application for transfer of control of wireless licenses:

The Transaction will serve the public interest, convenience and necessity by providing additional capital and managerial resources that will accelerate buildout of the Licensees’ broadband networks in Indiana, Michigan, Missouri, Ohio, Kansas, and Illinois, thereby advancing the Commission’s goal of “bridging the rural digital divide.” As a result, the Licensees will be better able to meet the needs of their existing customers by providing superior service and to compete for new customers by virtue of their enhanced capabilities. The infusion of new financial support resulting from the Transaction is expected to drive growth that will strengthen Licensees’ existing operations and enhance competition in the marketplace.

Importantly, the Transaction contemplates leveraging the capabilities and talent of Mercury Broadband’s senior leadership team to ensure that, post-Transaction, Licensees will continue to have the expertise to execute on their CAF-II and RDOF commitments, as well as to capitalize on the tremendous growth opportunities Transferor has developed in underserved and rural areas.[3]

Mercury Wireless Entities

Mercury Holdings, a Kansas corporation, currently holds 92.71% of the equity and voting interests in Mercury Broadband, LLC, a Kansas limited liability company, which is the direct parent and sole member of both Mercury Wireless Indiana, LLC and Mercury Wireless Kansas, LLC.

Mercury Wireless Kansas, LLC currently provides wireless broadband and voice services in Kansas and Missouri. It receives Connect America Fund (CAF) Phase II Auction support in Kansas and Missouri, and was recently authorized to receive $8,228,680.40 in Rural Digital Opportunity Fund (RDOF) Auction support to provide service to 13,450 locations in Kansas, Missouri, and Illinois.

Mercury Wireless Indiana, LLC provides wireless broadband and voice services in Indiana and Michigan. It receives CAF Phase II support in Indiana, Michigan, and Ohio, and was recently authorized to receive $53,493,220.80 in RDOF support to provide service to 109,296 locations in Indiana, Michigan, and Ohio.

The Investors – Northleaf Capital

NCP Mercury is a Delaware limited partnership that was formed to acquire indirect control of Mercury Wireless Indiana, LLC and Mercury Wireless Kansas, LLC through its direct wholly-owned subsidiary, Mercury TopCo, LLC. NCP Mercury and Mercury TopCo are holding companies and do not hold any FCC licenses or authorizations or provide telecommunications services.

NCP Mercury is ultimately controlled by Northleaf Capital Group, Ltd., “a global private markets investment firm based in Toronto, Canada with US$19 billion of private equity, private credit, and infrastructure capital commitments raised.” Northleaf is controlled (50.1%) by its three founders, Michael W. Flood, Jeffrey E. Pentland, and Stuart D. Waugh, and certain other members of its senior leadership team, who generally vote in a block pursuant to a shareholders’ agreement. Armstrong, L.P., a Canadian entity, holds the remaining 49.9% non-controlling interest in Northleaf.

Northleaf actively invests in communications infrastructure worldwide. For example, in the past few years, Northleaf acquired a majority share in United Kingdom broadband provider Quickline, and purchased a 40 percent interest in Aotearoa Towers Limited, a mobile tower infrastructure business, from Vodafone New Zealand Limited.

The Contribution Agreement

Pursuant to the terms of a Contribution Agreement, Mercury Holdings will contribute its interest in Mercury Broadband, the direct parent of Mercury Wireless Indiana, LLC and Mercury Wireless Kansas, LLC, to Mercury TopCo in exchange for preferred units in Mercury TopCo. As a result, Mercury TopCo will become the direct parent of Mercury Broadband and the indirect parent of Mercury Wireless Indiana, LLC and Mercury Wireless Kansas, LLC, both of which will remain direct, wholly owned subsidiaries of Mercury Broadband. After that, Mercury Holdings, NCP Mercury, and Mercury TopCo will enter into an Amended and Restated Limited Liability Operating Company Agreement of Mercury TopCo, Inc., pursuant to which NCP Mercury will acquire indirect control of Mercury Broadband (and Mercury Wireless Indiana, LLC and Mercury Wireless Kansas, LLC) by virtue of its control of the board of managers of Mercury TopCo.

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[1] Domestic Section 214 Application Filed For The Transfer Of Control Of Mercury Wireless Indiana, LLC And Mercury Wireless Kansas, LLC To NCP Mercury AIV LP, Non-Streamlined Pleading Cycle Established, WC Docket No. 22-279, Public Notice, DA 22-814 (Aug. 3, 2022), https://docs.fcc.gov/public/attachments/DA-22-814A1.pdf.

[2] NCP Mercury AIV LP and Mercury Holdings, Inc. Application For Domestic § 214 Transfer Of Control, WC Docket No. 22-279, pp. 1-2 (July 21, 2022), https://www.fcc.gov/ecfs/search/search-filings/filing/10721310165852.

[3] Mercury Wireless Indiana, LLC, Mercury Wireless Kansas, LLC, Mercury Wireless Holdings, Inc., and NCP Mercury AIV LP, FCC Form 603, Exhibit 1, Description Of Transaction And Public Interest Statement, Application File Number 0010135999.