Geez, the deals just keep rolling in. I had speculated several times this year about who might buy itcd, but while I was right they were for sale my thoughts as to the buyer turned out to be way off the mark! Today, Earthlink (NASDAQ:ELNK, news, filings) announced its intention to purchase the southeastern CLEC for $3.00 per share. Including net debt, the total purchase price therefore is $516M. That's an enterprise value of 4.7 times adjusted EBITDA, which seems reasonable at first glance. Deltacom doesn't focus much on its metro fiber and has never traded at the higher multiples of this sector.
Deltacom comes with 35 metro rings and 16,400 total route miles of fiber across 14 states. Their revenue is running at about $440M annually at its current run-rate, with adjusted EBITDA margins of around 20%. In the past year, the former has been falling while the latter has been rising, as the company has churned off some lower margin revenue. They tend to serve smaller businesses by reselling the ILEC's last mile via colocations in central offices. They have some 32,000 customers across their footprint.
So what is Earthlink up to? They'll combine the Deltacom assets with their existing New Edge Networks business of course. But this is the first time the ISP has delved in actual fiber. Whether it was dialup, DSL, or wireless MVNO, they have mostly sold other people's infrastructure. Only in their municipal wifi foray did they get their hands dirty somewhat, and that didn't turn out so well. Lately they have been doing little more than turning their existing businesses into cash as their modem customers continue to dwindle, albeit quite profitably and intelligently.
But now... Does this move suggest that Earthlink has a new plan for the future? Might they take more of that cash and put it into fiber? Ought we be considering them when other metro and intercity fiber assets come up for sale? Hmmm....