Looking Ahead for Zayo’s Next Move

September 20th, 2012 by · 7 Comments

Today Zayo said it has finished interconnecting the AboveNet network with its own and achieved a variety of other milestones in the integration, which it has been working on for a little less than a quarter now. It’s a bigger job than any they have attempted before, but in a quarter or two they’ll surely be ready for more.

Zayo’s not small potatoes anymore, what they do will have repercussions across the sector. So where makes the most sense for them to strike next strategically? Well, aside from the single market metro asset type they could go after at any time (Arialink, Fibergate this year), there are IMHO two main schools of thought:

  • Florida – While they added a node in Miami with the AboveNet deal, they have no metro and a very minor presence in one of the most populous states. It’s also a gateway to South America, a market that it’s becoming impossible to ignore. Two obvious M&A targets here for Zayo would be Fiberlight and FPL Fibernet, each of which would take them from zero to sixty in Florida immediately but would also help beef up Texas as well. Of the two, Fiberlight is likely available as the Thermo group seems ready to move on – and some have suggested to me that such a deal would probably have happened already if AboveNet hadn’t upset the apple cart.
  • Western Europe – Along with AboveNet’s London network was their expansion ring into France, the Netherlands, and Germany. At current pricing across the pond, you have to think that Zayo wouldn’t hesitate to go after something in the same zone, something that would come with the local expertise in running fiber on the continent. The company that fits that bill most clearly is euNetworks, whose management (Brady Rafuse, John Scarano) is very, very well known to Zayo’s CEO Dan Caruso. Whether they’re in a selling mood or not is another question of course.

Other possibilities are out there of course: New England or even Canada.  But those seem to be the clearest targets to me.

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Categories: Mergers and Acquisitions · Metro fiber

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7 Comments So Far

  • Anonymous says:

    For Zayo no one questions they will make a move but the questions is type. Do they want to remain dark fiber type company or do they want to make a move into a more enterprise focus. With enterprise I would look for a large embedded base with solid sales force.

    But I think there current model is solid and they will chose to stay the course so as you mentioned Fiberlight/Fibertech type company. Fibertech fills out Northeast with some unique CT routes.

    • With AboveNet they have already moved toward the enterprise market, or at least the bandwidth heavy WAN end of it. I expect that will expand further from here. But for M&A I do think it will continue to be focused on fiber primarily.

      I agree that Fibertech is possible for the northeast, and both Sidera and Lightower fit that bill as well. But all three have fairly active private equity backers. Zayo strikes most often when the seller has owned the asset for a long time and isn’t high on funding the capex. Thermo has owned FiberLight for a long time now, and seems to be more ready to move on despite the solid growth they’ve been putting up – hence my guess.

  • Next? says:

    Rob, it’s time to run this article again! M&A speculation is a cheap thrill but these deep-dives are way more interesting than a mere poll at the beginning of each year. Indulge!

    • Ben Graham says:

      Next? Says,
      You have a very good point and the timing is right as well.
      “Looking Ahead for Zayo’s Next Move”

      As for me, who has drunk way too much Level 3 koolaid, what instantly comes to my thinking mind is this motto used by Level 3: “Think Ahead”

      “Look & Think Ahead” would be a perfect fiber fit. Please Super Dan come back to your roots of Level 3 – Walter Scott would love to welcome you back.

  • LEVEL(3) says:

    Zayo, Sprint, Level 3 joint venture?

    Is the Sprint (S) and LVLT rumor still possible? The Wall Street Journal cited unnamed sources familiar with the matter who said the two companies have held talks about a joint venture. LVLT and S are considering a joint venture that could combine the company’s long distance businesses. A joint venture between S and LVLT would create a more formidable competitor to AT&T (T) and Verizon (VZ) in the markets for carrying data across the Internet.

    I believe it would a good move for both S and LVLT to get together. 

    Telecom Ramblings Rob Powell noted:

    S longhaul infrastructure at the fiber level is old (some of it is even direct-buried, no conduit) and they would have to spend huge amounts of cash to upgrade it. They haven’t done so and given their other troubles these days they probably can’t. Instead they have run the division for cash, capex as a percentage of revenues has been around the 5% level and revenues have stagnated. But Sprint Wireline still has almost $6B in revenue and an impressive customer list, a top IP backbone by any measure, and remains financially pretty healthy. So rather than do it alone, they are thinking of throwing it into a joint venture with LVLT who has the most modern infrastructure at the fiber level. This would allow the combined entity consolidate nearly $10B worth of revenue onto it.


  • Warren B. says:

    If you want me to buy the business, tell me what it is worth! Reveal the intrinsic value of the business and if the market price is below the intrinsic worth of the business by 50% ( Margin of Safety ), then I will back up the truck on Level 3 in the public domain. Or better yet, I prefer to do private deals, which in the telecom industry, ZAYO would be a prime candidate for inclusion into the operation businesses that Charlie & I have accumlulated.

    Walter Scott will always have my respect & honor.

  • 1whoKn0ws says:

    Zayo will never be able to keep the Enterprise market with their mismanagement ass-hatery. How many IP Operations managers have either quit or been fired since the Above net acquisition? By my count 4…3 former ABV managers who quit once they realized the learning disabled way Zayo planned to run their mpls network at 80% utilization, cut staff by 50% and replaced them with newbie contractors. The one IP manager hired by Zayo in Tulsa was recently let go after 4 or 5 months. No public disclosure, but many think it was for not being able to route his way out of a paper bag.

    Above net had the same Operations folks for 5+ years….Fandey / Marquardt / Cha / Stout / Clark….and for good reason. Those folks knew what they were doing and valued the network, ethics, and customers over EBITDA.

    4 managers in a year isn’t a “rough patch” IMHO…it’s a dead giveaway that Operations is being grossly mismanaged. You don’t see that kind of attrition unless the ship is sinking.

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