Since news broke that abvt has brought in JP Morgan to advise it on a potential sale, speculation has centered on who might buy them and for how much. A recent note from BWS agrees with my thinking though: that they’re probably only going to sell if offered some serious money. But I think another dynamic is on the rise as well: that AboveNet is increasingly well positioned to do the buying rather than the selling. The line between hunter and prey can be blurry at times, and perhaps they are now a bit of both.
During the fiber M&A surge of the past eighteen months, AboveNet has remained above the fray. They’ve looked at many of the assets bought and sold, but have been unwilling to pay the multiples necessary to join the party. And part of that has been the fact that as a public company their multiple is, well, public. And while private equity was paying top dollar for smaller fiber assets, the broader market hadn’t been noticing the same value. For them to pay a substantially higher multiple for an asset than they are likely to get for owning it would have been hard to justify – something that may also have helped dampen the appetites of tw telecom, Cogent, and others. But with the broad surge in interest in the sector lately and in AboveNet in particular, their stock price (and hence their multiple) has blossomed into a similar range as those private equity fiber deals.
That means AboveNet might now be able to justify deals that they couldn’t previously. And it just so happens that there are several assets available that might work. AboveNet has two advantages here: as a strategic buyer they will be able to derive synergies that pure private equity can’t, and they now have a stock they can use as currency. Now perhaps cash might be more desirable to some sellers, but being bought for stock in a larger public company is also an exit strategy for the private equity owners of a Zayo or a FiberLight or a Sidera. In fact, it’s one with the flexibility to keep some skin in the game if they so desire.
So who might AboveNet buy? Well, I mentioned Zayo, FiberLight, and Sidera because they would seem the best fits and would be the right size. FiberLight in particular would seem to be a perfect match with AboveNet’s existing business model, adding depth in some of their smaller markets plus adding Miami in a big way – with little if any extra baggage. Sidera fits too of course, but AboveNet doesn’t need much help in their primary NYC market and the northeastern regional fiber wouldn’t fit as well. Zayo’s more tier-2 focus and all that regional fiber would also involve a bigger shift in model.
On the other hand, if metro fiber was too pricey last year for AboveNet to make a move, perhaps it’s still too pricey now? I just think that AboveNet is at a turning point. They are no longer the small, nearly forgotten relic of the dot com crash they were a few years ago. They are also not yet the major force in the industry that their assets could empower them to become. From a position of strength right now, they and their owners can now choose between cashing in and going for a much bigger payoff five or ten years from now.
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