I've been asked now by several people whether there's a rumor out there about TW Telecom and some sort of imminent M&A. I think the talk I've heard thus far is mostly derived from the surge in their stock price since the middle of last week which took them above $20 again for the first time in a long while, as opposed to word of an actual deal on the table. Thus far I would stress that I haven't heard anything beyond that unspecific rumor of there being a rumor. But I really wouldn't be at all surprised if there was something at the root of it, so this seems like as good a time as any to ramble a bit on the subject.
Last year M&A activity was focused amongst smaller fiber providers, but predictions that it might spread to the larger ones did prove true at least in the case of LVLT/GLBC earlier this month. And readers might recall that TW Telecom's last big purchase was Xspedius back in 2006, and that it followed a string of metro fiber purchases by Level 3 in which TW Telecom was also bidding without success - notably for Telcove according to sources. History could easily repeat - I even made the case a few months back for a TWTC/GLBC deal. So if they are finally on the prowl again, who might TW Telecom target this time?
Well actually, because of its stronger balance sheet, free cash flow, and positive earnings, TW Telecom probably has many more choices available if it is interested. They don't need to deal, and therefore can be opportunistic depending on what is available. Here are a few quick thoughts on various combinations:
- XO - I've made this case often enough to not do it again here. Suffice to say it's a great fit on paper, but only if Icahn is ready to sell and nobody knows about that.
- Zayo - Given the attention span of most private equity money, speculation has arisen since new years that some of Zayo's backers may be looking to cash in. Certainly there would be a fit in terms of assets with TW Telecom. But it wouldn't be cheap, and hence I don't think TW Telecom would have much incentive to bite.
- Sidera, Lightower, or FiberTech - Any of these northeastern regional fiber providers has assets that would be excellent strategic fits that fill some holes in coverage. As each is being actively operated by private equity with an eye toward consolidation on their own, they're likely to be open to a deal. But as with Zayo, they probably wouldn't come cheap.
- Broadview Networks - This northeastern CLEC with a bit of fiber is probably for sale and would help boost TW Telecom's overall presence in the region. It would be more of a revenue play ($400M in 2010) than an asset play and the price would probably be at a more reasonable multiple than a denser fiber asset. TW Telecom could probably find substantial synergies by bringing more revenue on-net, so this is IMHO a real possibility.
- PAETEC - Yeah, think about it... Take all that revenue and put it on a combined national fiber network with what, 15K on-net buildings? PAETEC probably isn't for sale right now and they're busy integrating Cavalier and Intellifiber, but you never know.
- Sprint Wireline - Actually, this combination could make sense. The theory starts with the idea that a JV with Sprint being Level 3's major alternative to buying GLBC. Now that it's probably off the table for a couple of years, Sprint just might be looking at other options for its wireline business and a similar JV idea with TW Telecom and it's dense metro footprint and enterprise focus could be quite appealing. Sprint has been running it for cashflow for some time now, but barring a new wave of investment in infrastructure it seems inevitable that they make some sort of move.
There are obviously other potential combinations, but that's enough for now. Any thoughts?
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