Windstream (NYSE:WIN, news, filings) is buying itself a bunch of fiber! Today the rural ILEC announced that it has agreed to purchase Kentucky Data Link (KDL) as well as Norlight from Q-Comm. The transaction is valued at approximately $782M, the components of which will be 20.6M shares of stock, $278M in cash, and the repayment of $267M in net debt. From what I hear, this was not Windstream’s first offer, but rather its third. Additionally, there were active private equity bidders in the mix, but Windstream won out in the end.
For that price, Windstream picks up over 30K miles of fiber spanning 22 states and 500 PoPs that connect up many of the ILEC assets they currently have. Readers may remember that KDL was known to be for sale, and actually one reader left a comment here suggesting Windstream as the buyer. Indeed, Windstream seems like an ideal buyer because it can derive synergies from the unique geography that no private equity company might. Also, KDL’s assets already are aimed largely at central offices throughout the region, as opposed to a deep metro fiber footprint focusing one a few markets in depth.
The KDL/Norlight assets generated $231M in revenue and $92.8M in OIBDA. That gives us a nice clean EV/EBITDA datapoint of 8.42. That’s a pretty good valuation for a regional fiber asset like this, while the more focused metro fiber footprints might draw bids at a bit higher ratio. Windstream expects to derive another $25M in operating synergies, and intends to increase success-based capex with a particular interest in wireless backhaul.
KDL and Norlight have about 600 employees between them, but I’ll bet that headcount isn’t one of the bigger synergies that Windstream is looking for. Rather, this purchase seems to dovetail quite elegantly with last year’s purchase of NuVox, in that Windstream will now have an extensive fiber-based CLEC business that complements their ILEC business geographically and gives them a true regional presence. I wonder if they have further M&A in mind, I still think Deltacom looks like a fit, perhaps even moreso after this deal.
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