Between the traditional summer bookends of Memorial Day and Labor Day we had lots of M&A rumors amongst fiber operators, but only a few substantial deals that actually happened plus a smattering of smaller ones. More interesting was the substantial amount of fiber that was for sale that *didn't* get bought. Let's review:
Windstream's purchase of PAETEC was obviously the biggest deal of the season, and it surprised just about everyone to some extent. The combined assets of Intellifiber and the former McLeodUSA footprint make it a substantial fiber play by Windstream, but the fact remains that the vast majority of PAETEC's revenues are of the more traditional CLEC variety make the deal less about the fiber itself and more about its overall evolution from rural ILEC into an entirely new beast that needs a new acronym.
TelePacific bought Tel West to gain a foothold in Texas, picking up a bit more of the old ICG fiber footprint. It's a substantial strategic move by TelePacific, breaking out of its traditional geography, but Tel West's actual fiber footprint wasn't huge. Actually, I think TelePacific may have more M&A in mind in Texas to further enhance that footprint.
Then one has to look beyond US borders to find fiber deals of any size. Several private equity firms bought northern Italy's Metroweb in early June for €436M, and Canada's Cogeco announced the purchase of Montreal-based MTO just last week. Both came with substantial amounts of fiber and conduit. Two smaller US deals that did happen were DQE's purchase of Met-Net in Pittsburgh, and Riverside's investment in New England's segTEL.
By contrast, there turned out to be no fire under all the smoke on a number of fronts. The major US fiber assets of AboveNet, FiberLight, Sidera Networks, and Zayo did not get bought. Cable & Wireless flat out rejected a bid from Pacnet for its international assets. Rumors that XO might actually entertained bids were quickly stomped on by Icahn's final squeeze-out of minority shareholders. Other fiber operators in a position to do some substantial buying, e.g. TW Telecom, Zayo, AboveNet, and Cogent, didn't show up for batting practice - though I'm sure they had conversations about doing so. Earthlink seems to have taken a substantial swing at PAETEC, but came up short. There was more action on the managed side of things of course, including some by fiber operators themselves, but little new fiber.
Actually, what we seem to be seeing in the fiber space is part of a new trend toward more building and less buying, as capex seems to be rising and on-net footprint expansion has been accelerating. Last year's metro fiber M&A frenzy led to higher pricing while removing most of the easier, often under-funded targets from the pool. What's left are healthy, aggressive companies that are no longer underpriced. Perhaps these multiples will be where the industry settles down?
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