Today Zayo revealed that its recent equity financing amounted to $128M, which in this market is an amazing number for a company of Zayo’s size and easily exceeded both my initial $50M and updated $100M guesses. It wasn’t just from the original investors either, this time Morgan Stanley Alternative Investment Partners came along for the ride. While there has been some money raised during this credit crisis, most of it has been defensive money – for refinancing or continuation of needed buildouts. By contrast, Zayo’s new money appears to be for offense, and its backers are clearly looking to take advantage of depressed valuations. It’s awfully hard to convince people with money to go on offense these days, congrats to Zayo!
The money is slated specifically for expanding the company via M&A, which raises the question: what can one buy in this market for $128M? Probably quite a bit actually. Zayo made 11 fiber acquisitions with its initial $350M or so, having another third of that amount to spend is significant. Throw in depressed valuations during an economic blizzard, and they can probably use it quite effectively. Of course, healthier companies will be reluctant sellers at such depressed valuations, so the trick is probably to find the assets that aren’t so healthy on their own.
Who would that be? Amongst the smaller companies, they are mostly private and there’s really no way for a third party like me to tell which have financial stresses. As we have seen, many of these companies are expanding their networks despite the economy which implies those probably aren’t for sale. Actually I think the likeliest targets would be the larger companies. No, not buying a larger company, but helping a larger company focus on its core markets by taking peripheral assets off their hands – just like Zayo did in October picking up several more markets from Citynet. Perhaps a nibble over at some section of PAETEC’s McLeod assets, or even a minor market of Level 3 that would take too much capex for them to want to invest in it? Hmmm, we shall see.