Following my contrarian article last week where I predicted that tw telecom would not only not sell as analysts are predicting but actually buy something, several folks asked me the rather obvious followup of 'whom'. One regular commenter went so far as to ask if all roads still stop at XO, which of course has been on the receiving end of my M&A speculations multiple times in the past. Not all roads perhaps, but some do so let's start there.
- XO - Yes, the case is still there for this one. While the integration would be a challenge, XO's assets complement those of tw telecom and they'd be relatively cheap if Icahn is willing to sell. The intercity fiber, a complementary metro fiber footprint, and an EoC business that has some traction would fill some holes while there should be synergies aplenty moving to a higher margin platform. And I think XO and Carl Icahn are approaching a decision point this summer. In August it will be two years since he took it private and Laura Thomas took over as interim CEO with a rejuvenation plan in one hand and an axe in the other. That's time enough to get a feel for how a reorganization is turning out. Is there a standalone growth future for XO or did they just spend a while cleaning things up for a sale? Hard to say now that they're private and hence even more quiet than when they were public.
- Lumos Networks - I like this one better than XO actually. A deep and unique fiber footprint, profitable, higher margin, and publicly trade at a lower multiple than tw telecom itself. And on tw telecom's map, West Virginia, Pennsylvania, and most of Virginia are blank. What's not to like?
- Integra - With the shift to more fiber and larger multisite customers pushed by CEO Kevin Ohara well underway, Integra looks like a good fit for tw telecom right now in terms of customers and relative ease of integration. Margins are already pretty good, and the combination would boost tw telecom's western scale even further and give them an EoC angle as well. But the downsides are that the relative valuation wouldn't be as cheap and the assets wouldn't fill as many holes as XO might.
- Broadview Networks - Now that it's out of chapter 11, Broadview still looks like it's waiting for a suitor. With some northeastern fiber and an enterprise customer base that tw telecom could probably do rather better with, it would be a cheap way to build regional scale in the one part of the country that tw telecom's footprint is a bit thin.
- Cbeyond - No seriously, think about it. As Cbeyond is shifting toward Ethernet and managed services and priming the pump for more, the low margin customers they are sitting on could be a rich target environment for tw telecom's enterprise sales team and fiber depth. Low valuation, high synergies, plus a head start on cloud-based managed services for the SME.
- Cogent Communications - This was suggested to me offline, and is worth a comment. I believe that tw telecom would love to get its hands on the corporate-centric piece of Cogent, but probably would be rather uninterested in the net-centric customers and particularly in the European assets. Hence, I doubt they have enough motive to step up to meet Cogent's current valuation levels. But the two sets of assets might work very together quite well if the money guys found a way to make it happen.
- Others - What I don't think tw telecom is as likely to bid for is the sort of stuff Zayo buys lots of: raw dark fiber assets with a mostly wholesale customer list. Hence, I doubt they will bid for Lightower, DukeNet, Fibertech, or FiberLight - but it's always possible they could take a swing and the assets would be a good fit in the long run. There are still plenty of smaller targets that could attract their attention though.
Of course, I have no information saying any of these are actually in the works, it's just speculation at this point. Any other potential targets? Leave a comment and I will add my take.