Private Equity Moves In With DukeNet

June 25th, 2010 by · 8 Comments

More activity in the metro and regional fiber space today.  DukeNet, the telecommunications arm of Duke Energy, has brought in private equity money to fund its expansion.  Alinda Capital Partners and Duke Energy will form a 50/50 joint venture, with Alinda injecting some $137M in cash for the privilege.  DukeNet covers both North and South Carolina with some 5300 route miles of metro and intercity fiber, focusing on wholesale customers and large enterprises with a fair amount of tower backhaul, both wired and microwave.

Just what size business did that $137M buy half of?  That’s hard to say, as DukeNet’s contribution to its parent is not large enough to merit a separate line in its financials.  If one were to guess a 9x EBITDA, EBITDA would be in the $15M range, and if adjusted margins were 30-40% then revenues would fall in the $40-50M range.  But the error bars on that back of the envelope calcuation are very, very large.

A more interesting question is just how much $137M *will* buy, because I really don’t think DukeNet needs that kind of money for capex.  So the question is, what fiber assets out there might interest DukeNet that $137M plus whatever cash they have on hand might buy?  KDL is probably too big, but I’m thinking that perhaps the Fibernet assets in West Virginia that seem to be for sale as well might fit the bill.  Other possibilities that is geographically adjacent might be BalsamWest Fibernet up in the hills or perhaps Southern Telecom for an expansion southward into Georgia and Florida.

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Categories: Mergers and Acquisitions · Metro fiber

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8 Comments So Far

  • Anonymous says:

    Doesn’t Deltacom market and maintain Duke’s fiber? I know they did in the past and the fiber was/is included on Deltacom’s network fiber map.

    • ANON says:

      DukeNet handles their own sales and monitoring these days, but they are still interconnected with IFN.

  • Dave Rusin says:

    I’m not surprised seeing a PE firm enter into a JV structure like this with a utility as a Parent!

    • Rob Powell says:

      Yes, it seems attractive – the energy firm is basically giving them free reign to make something of the asset and likely would prefer to be a silent partner to the process.

  • Anon says:

    Does this group make or lose money? Maybe $137 MM buys just over half (e.g., 51%) so that Duke would not need to consolidate profits or losses on their financial statements. Just a guess, but often this is a structure used by publico’s with PE JV’s

    • Rob Powell says:

      For a company with over $12B in revenue, the telecommunications division is so small that the need to this would seem rather small, and it doesn’t really fit with the type of asset which is likely generating cashflow before expansion capex just like other such assets.

      At the moment, the dynamic seems to be more that PE really wants a foot or more in the door if metro and regional fiber.

      • Clevus says:

        Don’t forget too that if Duke Energy were to embrace smartgrid technologies, strong communication capabilities throughout their footprint would be needed to monitor and control the grid. Having excess capacity to sell would not add that much incrementally and could offset some of the costs.

  • anon says:

    It was 8X EBITDA

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