Earthlink (NASDAQ:ELNK, news, filings) took another big step toward becoming a major national CLEC, announcing this morning a definitive agreement to purchase the struggling One Communications. The price will be $370M, including $285M that will go to paying off debt. The EV/EBITDA multiple for the deal was given as 3.7, reflecting $80M in trailing twelve months EBITDA plus $20M from synergies to be realized.
Earthlink will integrate the assets of One Communications with its New Edge Networks business and the recently acquired Deltacom. There is a bit of overlap between One's footprint of 629 collocations and the northern edge of Deltacom's fiber network, but not too much. For One Communications' 1500 employees, I doubt there will be too much in the way of upheaval in the short term.
Whatever Earthlink's plans are, I don't think they are done - a fact borne out by the company's adjustment to its dividend today. The purchases of One Communications and Deltacom seem like the first half of a larger plan in which Earthlink pieces together a national footprint that equals more than the sum of its parts. I think that means they need more metro fiber somewhere. Perhaps they are the ones said to be taking a close look at Alpheus down in Texas.
I had thought that PAETEC (news, filings) might win this one, in that there were probably more synergies to be had with an overlapping footprint. But Earthlink has a full wallet, which obviously counts for a lot.
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