And AboveNet Goes To…

April 18th, 2012 by · 21 Comments

Zayo, of course.   This morning AboveNet announced that the go-shop provision that was part of its merger agreement with Zayo has expired.  No additional bids were received, and therefore it looks like the deal will in fact go through as originally envisioned.  There had been no serious talk of another bid (that I heard anyway), and indeed it was hard to come up with a bidder with both the motive and the means that hadn’t already kicked the tires last summer.

The two companies anticipate closing the deal this summer, and I don’t doubt it given Zayo’s track record in pushing these things through.  Zayo’s disruptive business model paired with AboveNet’s Tier 1 fiber density will put the combined company in a position to challenge the larger companies in the sector directly via a full national footprint.  Congrats to Dan Caruso and his team for what will probably be the fiber M&A coup of the year — if you think the fiber business is inherently undervalued right now (as I obviously do).

A few days ago, AboveNet filed a preliminary proxy with the SEC detailing the expected financing that Zayo will be using to make the $2.3B deal happen:

  • up to $1.5B from a senior secured term loan
  • $750M in senior secured notes
  • $500M in senior unsecured notes
  • $290M in equity financing from GTCR and Charlesbank
  • cash on hand

If that adds up to more than $2.3B, I guess maybe they’re going to have a war chest on hand afterwards.

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Categories: Mergers and Acquisitions · Metro fiber

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21 Comments So Far

  • The SEC filing also detailed the long M&A negotiations amongst a bevvy of private equity companies and several other strategic investors, including one of the former that was bidding against Zayo right up into March.

  • What's next says:

    Zayo’s not done yet…..

  • CarlK says:

    Congratulations to Dan Caruso is now fully appropriate! The man is a force in telecom and the internet to be reckoned with! He is doing amazing things in the marketplace. Very impressive!

  • schmuckinsurance says:

    11 financial bidders is the most I have seen in quite some time.

    Congrats Dan. I agree with Rob – your bid timing kept the number of strategic bidders well below the number of financial players. Nice job.

  • Anon says:

    This posting outlines deal capital as follows (assuming cash on hand is a constant before and after closing):

    $2.75 Billion in DEBT + $290 MM in EQUITY. Total Deal Capital of $3.04 Billion. As such, this is the single most highly levered acquisition in the telecom space in recent memory. If anyone can point out a “higher” high-wire act, I’d like to see it.

    The assets that comprise AboveNet (MFN and SiteSmith, etc) and also the other Zayo assets (360, etc) have already been levered up, gone bk and started over. Is this simply another go arouond? Do interest rates still go up? Do debt markets still close or get less risk tolerant? If levering up these assets is such a good idea, how come it didn’t work with the same assets last time ?

    • Parkite says:

      Because they have been purchased at a much lower price. It is all about your entry price.

      • Anon says:

        um, the entry price is a new high?? The much lower price basis (from bk) is now replaced by a public market price (efficient market) and set at a FIVE YEAR high plus an M&A premium…

    • valmont says:

      “$2.75 Billion in DEBT + $290 MM in EQUITY. Total Deal Capital of $3.04 ”

      quiz time: assume Firm A has $100M in EBITDA.

      scenario 1: Firm A is acquired for $100M (i.e. 1x EBITDA). The transaction is financed with $90M debt, $10M equity (i.e. 90% leverage).

      scenario 2: Firm A is acquired for $1B. The transaction is financed with $500M debt/$500M equity (i.e. 50% leverage).

      which transaction has greater risk of defaulting?

  • Still not clear to me why selling the company was necessary or in shareholder interests.

    • Definitely not necessary, but shareholder interests are in the eye of the beholder I guess – in this case the eye of the largest shareholder. I do think Bill LaPerch & crew would have preferred to be the acquirer rather than the acquiree.

  • anonymous says:

    I believe the long term strategy is for Zayo to continue to buy assets while Level 3 gets all of their ducks in a row. Crowe announces his retirement and we see a Level 3 – Zayo merge with Caruso taking over for Crowe.

  • Mike says:

    With all the acquisitions Zayo has been doing, does anyone else think they’re ripe for screwing up the integration and market focus in the same manner Level 3 went through in 2006/2007? There are alot of systems, markets, policies to digest to make all of these things work…

  • Anonymous says:

    $3.0bn of financing covers ABVT equity purchase price ($2.3bn) & refinancing of existing Zayo cap structure ($350mm notes, $315mm TL, revolver). No new war chest.

  • Anonymous says:

    Abovenet had a social responsibility to not sell, which they ignored, to continue to support their employees and families in these tough economic times….cashing out is the easy route, doing what is right is the tough but morally and ethically right path…everyone is falling all over each other to see how fast they can build it and sell to make a profit, all on the backs of folks who won’t see much…disgusting

  • Anonymous says:

    Abovenet is responsibility to their shareholders first and foremost. Those are the people who funded all those jobs you are talking about and allowed the company to grow at a big rate by providing the cash that was needed. This is not a mom and pop local candy store. Their job is to create value for shareholders. Employees are not entitled to stock grants, they could have easily have bought stock on the open market and made just as much money as anyone else.

  • Fancy Pants says:

    What I want to know, maybe Rob can comment, where the heck is time warner telecom in all these M&A? They were strongly rumored looking at ABVT for a looooong time.

    They have this great footprint and a very decent portfolio, and no eye to expand the reach to some of the holes on their map? Unless they are intentionally an acq target, there really aren’t many chances left to grab some fiber assets, which is really all they need.

    They have that reputation for extreme caution, but the price is the price for someone like Sidera or Lightower or Fiberlight. And unlike the other recent gobblers, you know they are making top-line money and have the financial security to do it and prob make better on integration promises too.

    But their only press release in weeks is expansion of a collo. Really? That’s their plan: compete for space and power?

  • valmont says:

    “the price is the price for someone like Sidera or Lightower or Fiberlight”

    probably wouldn’t want you making capital allocation decisions.

    • Fancy Pants says:

      Aren’t you witty?

      It’s not about whether they would be out some cash on hand (which they can afford and build on) for a great and well-negotiated expansion; its about whether they would be out of the game (which they can’t afford) by not keeping up with their competitors. Unless they are looking for a buyer, of course.

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