After last year's orgy of private equity-driven metro fiber consolidation, 2011 has been quite a different story. Public companies did most of the heavy M&A lifting this year, with two multi-billion dollar purchases, a national network going private, and a regional network being spun off.
- Level 3/Global Crossing - It was rather anticlimactic for me when this deal finally happened last April, as I had been expounding on the deal's merits for both companies for so long I was starting to repeat myself. While Level 3 Communications (NYSE:LVLT, news, filings)'s stock has pulled back since the early euphoria in the months following the announcement, the numbers underlying the deal remain very powerful even with conservative assumptions and by summer the company should be starting to look quite different. In the meantime, patience is the only reasonable stance - though it's not one that anyone enjoys.
- Windstream/PAETEC - This move by Windstream (NYSE:WIN, news, filings) caught me off guard at the time, but their timing was excellent. Rumors of an 11th hour bid by Level 3 turned out to be just talk. The long term effects of Windstream's emergence as a fully national CLEC/ILEC hybrid with a substantial fiber footprint east of the Rockies will be come clearer in 2012. PAETEC's data center and nascent cloud offerings also bolster the company's enterprise focus going forward. I strongly suspect that Windstream will make a play for Integra next year to complete the set, though with O'Hara taking over at Integra perhaps they won't be ready to dance.
- XO goes Private - While the company didn't technically change hands when Icahn took full control of XO over the loud objections of minority shareholders, it finally broke up the status quo. Since then, XO Holdings (news, filings) has been largely quiet publicly while tales of draconian layoffs and major restructuring have proliferated. None of this has been too surprising, it still appears that the endgame for XO will be a sale next fall to a strategic buyer after Icahn gets done remodeling in advance to get that optimal price. He would have done much better to do such work 5-6 years ago, but c'est la vie.
- nTelos Spins Off Lumos Networks - In a rare example of the opposite of consolidation, nTelos (NASDAQ:NTLS, news, filings) actually spun off its fiber/CLEC/ILEC business under the name Lumos Networks (NASDAQ:LMOS, news, filings). The split finally took place last month, and we haven't seen Lumos report as an independent entity yet. But I'll be watching when they finally do.
- HickoryTech/IdeaOne - HickoryTech (NASDAQ:HTCO, news, filings) was the only other publicly traded fiber operator to buy more fiber this year with the pending purchase of IdeaOne. This was a regional expansion, giving the company a fiber foothold in North Dakota to combine with its Enventis subsidiary.
Meanwhile, two of the larger privately held operators made key deals this year.
- Zayo/360Networks - Zayo Group (news, filings) continued its extended fiber roll-up by buying 360networks and connecting up many of the disparate western assets the company has accumulated over the years. This was a combination I had speculated about in the past, as its strategic merits had long been obvious. As a result we can no longer call Zayo a regional operator, they've arrived on a national scale now.
- TelePacific/Tel West - While not large in monetary terms (as far as I know) and with only a little fiber in the grand scheme of things, TelePacific's purchase of Tel West and the former ICG Texas assets they purchased a few years back foreshadows additional activity by the western CLEC outside its Californian home turf.
And there was a much smaller selection of smaller deals, each of which saw a regional operator extend into new markets.
- FPL Fibernet/Grande - In buying Grande's wholesale business, fplfibernet took the first big step out of the shadow of its energy utility parent and into new territory. Texas has been hot lately, the question is just how aggressively if FPL Fibernet going to invest in these assets? We haven't heard much from them since the deal was announced back in Q1, so I'm curious what they've been up to.
- Tech Valley/segTEL - I had not heard of techvalley, but with private equity backing from Riverside they went and bought a majority stake in New England operator segTEL, which I had also not heard of. I'm sure we'll be hearing more from these guys.
- Gores/First/Alpheus - The biggest private equity play outside of Zayo was probably made by Gores, which is buying Alpheus and may combine it with its other fiber asset: First Communications. Alpheus was for sale for quite some time, and I was a bit surprised that it wasn't a strategic buyer that snapped them up in the end. Gores probably isn't done yet - but we said that about most of the private equity buyers last year that sat on their hands this year. Well, except for ABRY which was buying other stuff - just not fiber.
That's about it. Most of the rest of the activity pertained to data centers and cloud services - more on that in another post. 2011 was notable for what didn't happen in fiber M&A. AboveNet didn't get sold, and neither did Zayo, Sidera, Integra, Broadview, FiberLight. AboveNet, tw telecom, and Cogent made no moves at all despite being in the best position to do so.
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