AboveNet Shifts M&A Stance to Hungry

October 23rd, 2011 by · 4 Comments

There’s a Reuters interview out over the weekend in which Bill LaParch, CEO of AboveNet, sounds eager to make his company’s first M&A move. Most of that is via the word ‘keen’ in the title rather than actual quotes, but still.  He also suggested $600M in debt as a level that AboveNet could support to make a deal happen.  I have long thought that AboveNet made a better buyer than seller in the M&A arena, despite the rumors over the summer.  Let’s take a quick survey of what they might want to buy:

The obvious candidates:

  • Sidera Networks – The article quotes industry analyst Donna Jaeggers suggesting Sidera as a likely target, and I don’t disagree that it’s a reasonable idea.  However, ABRY was shopping Sidera over the summer and apparently didn’t get its price – I don’t think much has changed.  Also, I tend to think AboveNet would focus its M&A on geographies where it is weaker than the Northeast.
  • FiberLight – Of all the other metro/regional fiber builder/operators out there that match up, I think FiberLight is closest strategic fit. Their Florida footprint would give AboveNet a substantial boost in the state, especially in Miami where AboveNet recently established a foothold. Meanwhile, the Atlanta and DC/MD/VA, and Texas footprints would be very complementary. However, FiberLight also was on the market over the summer when AboveNet could have bid, so perhaps nothing has changed.
  • FPL Fibernet – Again Florida assets, with some in Atlanta and Texas to go with it. Strategically, Florida feels like a place AboveNet might do via M&A IMHO, and FPL would be the most straightforward way to go about it.  While they are perhaps the most aggressive of the US fiber assets owned by an energy utility parent, FPL could easily decide to monetize the asset.
  • Fibertech or Lightower – both would add regional depth in the northeast for AboveNet, but are owned by private equity that seems interested in operating/building/acquiring on their own for now.

There are less obvious candidates out there though, both domestically and not.  Here are a few examples.

Single market fiber assets:

  • DQE Communications – Pittsburgh would be a straightforward addition to AboveNet’s US markets, though perhaps it isn’t on their short list.
  • SRP Telecom – AboveNet is in Phoenix, but nowhere near as extensively as they would be with SRP’s coverage.
  • Sunesys – We don’t hear much from Sunesys, but the full national fit with AboveNet seems quite attractive.
  • Access Fiber Group – Tier 2 market entrypoint – Birmingham, Nashville, Milwaukee, Charlotte.

non-USA expansion targets:

  • Fibernoire – Toronto, Montreal, and Quebec City. AboveNet is already working on Toronto of course.
  • euNetworks – yet more scale in London, and a quick way to a greater German presence?  I doubt they’re for sale right now though, and there’s some history between the two.

There are others, but those are the main ones that seem like reasonable targets to me. But AboveNet has been quite disciplined, and I think it’s very possible that they may prefer to make a move only if/when pricing comes down.

Any other possible/likely/outlandish targets out there?  I’d love to hear them and promise to give my take, so leave a comment.

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Categories: Mergers and Acquisitions · Metro fiber

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4 Comments So Far

  • Anonymous says:

    The Superpower becomes the Zayo/abovenet merger. Both have similar networks and wholesale approach to the Fiber business. Not much legacy small and medium enterprise.

    Then maybe the XO LH piece to make a national superpower. Although the enterprise would be a larger integration then Zayo has tackled in the past.

    • Rob Powell says:

      An Abovenet/Zayo merger would certainly shake things up! It’s hard to imagine either agreeing to the other’s price though. Both are spending capex at levels aimed at proving market valuations to be too conservative.

      • brooke says:

        rob, been reading your articles. what about ftwr? I see you mentioned abovenet as a suitor in a later article, but when you printed this article ftwr wasn’t mentioned. i’m mostly curious what rumors you must be hearing. three people leaving the board, 40% lay-off; i imagine you have an idea what the company is up to. what do you think. feel free to email or reply.

  • Anonymous says:

    Not sure I saw this posted, Zayo 360 purchase $345 million. Safe to say Abovenet would be a higher purchase price

    Section 1 — Registrant’s Business and Operations
    Item 1.01 Entry into a Material Definitive Agreement
    On October 6, 2011, Zayo Group, LLC (“Zayo”) entered into a Stock Purchase Agreement (the “Agreement”) with 360 Networks Corporation, a British Columbia corporation; 360 Networks (fiber holdco) Ltd., a British Columbia corporation; and 360 Networks (fiber subco) Ltd., a British Columbia corporation (collectively, the “Sellers”).
    Upon the close of the transaction contemplated by the Agreement, Zayo will acquire 100 percent of the outstanding capital stock of 360networks Holdings (USA) Inc., (“360networks”) a Nevada corporation and a wholly owned subsidiary of the Sellers (the “Acquisition”). The purchase price, subject to certain adjustments at closing and post-closing, is $345,000,000. The Agreement is subject to customary closing conditions (including regulatory approval) and provides for customary representations, warranties, covenants and agreements, including, among others, that each party will use commercially reasonable efforts to complete the acquisition.
    In connection with the Agreement, Zayo has obtained a debt commitment letter that, subject to customary closing conditions, commits certain lenders to provide financing for Zayo in an amount sufficient to permit Zayo, together with cash on hand, to make all payments required to be made to the Sellers in connection with the closing of the Acquisition.
    360networks operates over 18,000 route miles of intercity and metro fiber network across 22 states and British Columbia. 360networks’ intercity network interconnects over 70 markets across the central and western United States, including 23 Zayo fiber markets and a number of new markets such as Albuquerque, Bismarck, Des Moines, San Francisco, San Diego and Tucson. In addition to its intercity network, 360networks operates over 800 route miles of metropolitan fiber networks across 26 markets, including Seattle, Denver, Colorado Springs, Omaha, Sacramento, and Salt Lake City. The resulting combined fiber network will total over 42,000 route miles and nearly two million fiber miles.
    On October 7, 2011, Zayo issued a press release

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