Two months ago, Zayo raised $128M with the stated intention of spending it on M&A. Today, they made good on that promise with the announcement that they will be buying ftgx. The price will be $11.45/share, for a total purchase price of a bit over $90M including net debt of $5M. It’s not quite a done deal, Fibernet has a couple weeks to solicit a higher offer. However, if the transaction goes through, Zayo will add annual revenues of $60-65M and EBITDA of $13-15M to its books. That corresponds to an EBITDA multiple in the neighborhood of 7, which seems like a reasonable price tag at the moment.
Fibernet is an interesting purchase for Zayo. First, it brings them a real presence in the New York metro area – they had some assets, but nothing major – and a starter set in Los Angeles. Fibernet has some of its own fiber and they lease metro dark fiber as well, mostly looking to hook up carrier hotels and other wholesale locations. They aren’t in the business of hooking up tons of enterprise buildings, and their datacenter and meet-me facilities, which would seem to be a new business area for Zayo. I suspect that the real value here for Zayo comes from the new relationships with wholesale customers on the east coast that operate within the datacenters connected by Fibernet. Fibernet had a growing off-net transport business, reselling transport from its major locations to anywhere. Some of that will now be on-net, and more probably will be as time goes on. Fibernet’s customers will now be able to purchase direct connectivity to many more locations, and Zayo’s customers will have better direct access to the major NYC facilities.
When I first saw the deal, I thought Zayo might be doing what Fibernet once did a decade ago – buying a public company to become one. But the deal is for cash rather than stock. Besides, if Zayo goes public one day they’ll surely want to raise money at the IPO. I look forward to more information on this deal over the next few days, Fibernet has never really offered much information on its fiber footprint.
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