Following the AGL deal, it appears that indeed the M&A market for fiber is going to continue heating up. The latest news comes from Rochester, where northeastern metro operator Fibertech has now quite publicly put itself up for sale. I had heard whispers that this move was coming, but hadn’t realized plans had advanced this far. The driver is simply that Fibertech’s largest backer, Nautic (51%), wants to monetize the asset. Interestingly though I hear that the other backer, Bank of America (49%), does *not* want to exit and might prefer to invest more rather than less.
Fibertech operates metro networks in 24 cities, most of which are tier 2 and 3 markets in New England, upstate New York and down the I-95 corridor to Maryland, plus Pittsburgh, Columbus, and Indianapolis. Overall, they boasted more than 5000 route miles and 3800 on-net buildings as of December. 2009 revenues were apparently around $67-68M, up 25% from the prior year. That’s some very solid growth of course, but it remains to be seen what kind of multiple Fibertech might get for its assets. If we guess 35% EBITDA margins or $23-24M, a multiple of 8-9 would value the company at around $200M give or take. But that’s just a back of the envelope WAG.
So who would be the likeliest buyer of these assets? The RBJ article above starts with PAETEC (news, filings), which is not unthinkable but is mentioned mainly because it is also based in Rochester and therefore of interest to the publication’s readers. Also mentioned are abvt and Zayo. I doubt that Abovenet will be the buyer, I don’t think they intend to step outside the Tier-1 markets they prefer. Zayo is definitely a possibility even though they will be busy with AGL. In fact they are probably a front-runner, however there are other buyers in my opinion that are just as likely.
The first rather obvious potential buyer is TW Telecom (NASDAQ:TWTC, news, filings) for whom these assets would fit very nicely, and they wouldn’t need to find funding for it either. The second, which is perhaps less obvious, is the independent fiber arm of Cavalier: Intellifiber. Intellifiber’s intercity fiber footprint has uneven metro depth, being very deep in the PA/MD/DE area plus islands of coverage in upstate NY and the Midwest. Overlaying the Fibertech assets onto that footprint is visually quite pleasing.
And another set of assets that matches up well is RCN Metro. No, not as a buyer since RCN is for sale already, but as a platform for their likely buyers at ABRY. For instance, if they are serious about the metro fiber space as well as the triple play business they are more familiar with, ABRY could simply buy out Nautic’s share or they could come to some other arrangement with Bank of America.
Further possibilities with a good asset match include Lightower and Level 3. All in all, Fibertech’s assets will probably see many prospective buyers kicking the tires over the next month or two.
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