During Level 3′s earnings call last week, the company mentioned an acquisition if fiber in London they made in 2012. The deal wasn’t big enough to make the news, and there apparently wasn’t enough revenue to be material in a financial sense – so it slipped between the news cracks. But it’s not often a deal goes by without a mention here, so it’s time to belatedly note that in August Level 3 acquired FibreSpan.
FiberSpan had metro fiber in London, a portion of which was leased from Scottish and Southern Energy Telecommunications relatively recently. They then leased some of that fiber a couple years ago to a subsidiary, AlgoSpan, a company that serves the financial vertical – specifically the HFT guys. Level 3 seems to have acquired the parent, and probably become the supplier to AlgoSpan while gaining the extra metro footprint while gaining substantial metro depth in the process.
I heard rumors of this transaction, actually, but never saw the news so I didn’t follow up. But FibreSpan’s website directs to Level 3′s now, so it did happen. While it’s a small deal in the grand scheme of things, Level 3′s purchase reflects a type of M&A opportunity available in Europe that isn’t well known here. There are many smaller regional or single market fiber assets like this that could be available elsewhere in Europe, and not just to Level 3.
A wave of consolidation in Europe seems to be starting to build, but most people are looking at combinations of incumbent providers and their various subsidiaries. The smaller stuff gets ignored, but could allow the relatively few independent pan-European operators to add enterprise depth and thus challenge those incumbents over ever wider geographies.
As for Level 3′s earnings news itself, I’m still digesting the results and guidance and trying to update my model to reflect it. The difficulty revolves around a hit to their costs beyond the one time items and beyond the Sandy/healthcare impact. In simple terms, if revenue growth was decent and integration has been great, then EBITDA ex one time items plus Sandy and all that still should have been $15M higher and I don’t know where it went. And given the forward guidance for EBITDA of low double digit growth, it seems they’re expecting it to not be a short term thing. Updating of my model is still in progress, but the preliminary 2013 EBITDA outlook I come up with is rather less rosy than it was before – which is no doubt why the market has punished their stock price.