I was looking back over yesterday's post reviewing the M&A activity this year, and it occurred to me that I may never have written a general fiber/bandwidth M&A article and not mentioned ANY of the names AT&T, Verizon, Sprint, Level 3, Global Crossing, TW Telecom, XO, Abovenet, or even Cogent. The only large, public network operators which have participated in this year's M&A binge (as a buyer) have been the rural ILECs CenturyLink and Windstream plus super-CLEC PAETEC, each of which is in the process of seriously boosting the fiber in their diet. So where are the other guys?
I suppose there are good reasons why the largest strategic buyers have stayed home.
- AT&T, Verizon, and Sprint care mainly about wireless right now, even Verizon's FTTH efforts are waning.
- Level 3 once bought like 7 companies in just over a single year, but is still battling back from the aftermath. Even still, they'd probably be in the game if the street would fund them cheaply again - which last week's expensive $175M converts proved is not currently the case.
- Global Crossing bought metro assets in both the UK and South America, but can't seem to find anything it likes in North America even though it seems like they could really use them to boost margins. But metro valuations are probably higher than they like, and getting enough for their money would probably require them to expand their focus from wholesale and large corporate customers - something they don't seem interested in.
- TW Telecom has always been a tad conservative, but I really expected they would somehow make a move. The integration of Xspedius proved they know precisely what they are doing, and their balance sheet, profitability, and stock price make them well positioned financially to buy just about anything. I was surprised that they didn't win any of the auctions up in New England, where they don't currently have anything. Perhaps they'll turn up somewhere unexpected soon.
- XO is, well, otherwise occupied while Carl Icahn plays his games. With common stock trading for less than a half filled container of tic-tacs, cash levels dipping toward the $50M mark, and management publicly maligning the idea of taking on debt - they're in no position to be buying anyway.
- Abovenet is also well positioned financially, however their business model is so tightly focused on Tier 1 markets that there aren't many targets out there that fit. There are a few though, so you never know.
- Cogent, like Level 3, once bought everything it could get its hands on - though mostly at garage sales. Haven't heard a peep from them on the M&A front, these days they are buying/leasing dark fiber both in the metro and longhaul. Apparently, actual fiber asset prices aren't low enough to interest them.
So for the most part, I guess the field really is wide open for aggressive buyers like PAETEC, Windstream, Zayo, Lightower, and of course those ever-present PE firms. However, I still think TW Telecom will show up in the picture eventually. So many assets look tempting when added to their huge footprint and well-oiled operations... even Larissa Herda can't resist the temptation forever, can she?
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