Seven Telecom and Infrastructure M&A Predictions for 2014

December 31st, 2013 by · 15 Comments

Look into the Crystal BallNew Year’s Eve is upon us already, and that means it is time for a few bold M&A predictions for 2014. That’s despite the fact that I pretty much struck out with nearly all of last year’s predictions, but who’s counting. This coming year’s infrastructure markets seem to me to have a less certain path than usual, meaning it is harder than usual to eliminate possibilities.  Nevertheless, a prognosticator must perforce prognosticate so here goes:

  • There will be a battle for T-Mobile USA, and Dish will win it in some form. Softbank will make its play, but this time Charlie Ergen and Dish will prevail because they want it more and because regulators will favor keeping a fourth wheel on their wireless cart. That doesn’t necessarily mean a straight buyout though, it could mean some sort of partnership with DT that puts Dish’s spectrum to work and brings in the funding to keep John Legere and his team on offense.
  • Softbank will buy fiber and data instead – I find it telling that since taking control of Sprint, Softbank hasn’t made a move with the wireline business.  I’m now thinking they won’t. Rather, they will see opportunities to combine that business with some out-of-favor-but-potentially-valuable-in-the-right-hands assets such as Reliance Globalcom or XO or Pacnet and build something new out of it all, something that complements their wireless business more and has a cloud component.
  • Now that nobody is looking, Icahn will start quietly shopping XO – The company has spent more than two years reorganizing itself behind closed doors and recently brought in a new CEO.  But I think he may be there to make the case for the assets to potential buyers.  Icahn may not find a buyer that will meet his price right away, but I’ll bet that rumors will start to bubble to the surface by summertime.
  • Level 3 won’t make any substantial M&A moves this year. Yep, a negative prediction this time. My sense is that the new management is very organically focused, that the continuing NSA fallout will make it harder for them to buy in Europe (where it would otherwise make the most sense) for now, and that the prices will just be too high to permit the bargain they would need to pull the trigger on anything big.
  • European metro and regional fiber operators will take consolidation into their own hands. While everyone else is paying attention to wireless, the likes of Colt, Interoute, euNetworks, and their smaller privately held brethren will start making the moves they have been plotting in back rooms for the past 2-3 years. Just who makes a move on who I’m not sure, but there will be fewer of them when next Christmas arrives.
  • NTT will buy Limelight — After buying RagingWire and Virtela, the one piece missing from NTT’s US enterprise cloud presence could be the fully scaled CDN and optimization capabilities that Limelight brings to the table. With EdgeCast in Verizon’s hands, I think that NTT will follow up with its own move.
  • Windstream will buy more fiber this year – Whether it’s Integra, XO, or something else, they will look to fill in the gaps in their national fiber footprint in order to further boost their enterprise ambitions.

Have a prediction of your own?  Step up to the microphone in the comments below.

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Categories: Content Distribution · Fiber Networks · Mergers and Acquisitions · Wireless

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15 Comments So Far

  • Anonymous says:

    Zayo goes public in 2014 and with that Buys EUnetworks. Seems that the Zayo US network is complete or underconstruction in many areas due to cell backhaul projects and previous M&A. They let that develop in USA and inorganically grow in Europe. And of course leadership are old friends almost part of the bigger plan.

  • Grant Lewis says:

    Rob –

    Happy New Years. You’re doing a great job … please keep it up. To that end, my predictions to augment yours are as follows:

    1) Fibertech gets sold by PE to Zayo or another fiber hungry buyer. Look to end of 3rd quarter or early 4th quarter to have this done.
    2) Telepacific gets sold to Windstream or Centurylink. I thought this might have happened in 2013 but it became obvious that for at least Windstream their dividend pressure and lack of successful integration delayed additional acquisitions.
    3) Internaps starts an acquisition focus … perhaps Layered Technologies or an outside unlikely EarthLink (only b/c its done some good things in its Cloud business and the fiber could be divested for cash quickly).
    4) EuNetworks is sold, but not to Zayo. I think its more likely that it goes to NTT or maybe Telefonica if they have an interest in getting back into the game.
    5) Orange and Deutche Telecom will merger or DT will acquire Orange. Either way getting scale is critical to being successful in this market.
    6) Additional cloud services companies will be acquired by telecommunications providers who aren’t in the wireless space as they will need to remain competitive with their customers and standard telecom services are becoming irrelevant faster than most anticipated.

  • Rob Powell says:

    Zayo/Fibertech has always been a likely combination, it could happen.

    If TelePacific sells, I think it will be to Windstream rather than CenturyLink, but Windstream may be more interested in Integra if it is available. I See TelePacific more as a buyer this year.

    I don’t see Internap as a big buyer, but some small stuff sure. As for EarthLink, I think they just tough it out this year.

    I can’t see NTT or Telefonica buying euNetworks, but I do agree that other buyers than Zayo would be interested should they be available.

    Orange/DT merger? Now that will be something to see. I’ll remember this comment should we see such a deal start to materialize!

  • Anonymous says:

    Seems consensus Windstream will make a move west. Telecom ramblings historical discusion has Windstream/XO as a possibility. No way of knowing price tag attached to XO but in comparison to Integra who has approx Adjusted ebida of $185 million what woudl there price tag, and is 1.5 billion a reasonable ask . I say that because ifI am Windstream with a large checkbook I may look XO before Integra if it is an option.

  • Anonymous says:

    CTL or Zayo makes a move to acquire the largest jewel in the fiber space…TWTC. This would be Zayo’s backdoor approach to going public.

    • Rob Powell says:

      I’m sure another rumor or two of such a deal will make waves this year, but I’m skeptical that there will be actual fire underneath the smoke. If anything, I still think TWTC would be a buyer rather than a seller.

  • Jon says:

    Unfortunately, CTL acquiring anyone (except perhaps Windstream) will be a downgrade for the customers of the acquired company. It may make the street happy to see complementary players in the telecom arena eat each other, but particularly in regards to CL, it doesn’t bode well for the rest of us. It certainly wasn’t a positive for Qwest customers (consumer or business)…

    If CL eats TWTC, it will be the outright destruction of an otherwise decent enterprise provider.

  • Jimmy the Hat says:

    Surprised it took the whole post and many replies before TWTC came up. Though they have defied the last few years worth of predictions, so maybe that is why Rob stayed away!

    They keep quietly making moves that don’t feel like someone looking for a suitor. But the problem for continuing on is both the best and worst thing they have going for them: consistently eeking out predictable, conservative growth. At some point shareholders get tired of it.

    Either they too move on some EU assets or partnership, finally decide to jump in the cloud, or go after some other niche. Pretending your portfolio is not a commodity can only last another year or so – and that slow but steady growth along with it. The only way to break out is find some new value stream that cannot be replicated, play with the price vampires, or get really vocal with marketing. They have shown they don’t like the latter two, and the former is a “me too” thing lately – jump in the cloud? like the last 50 telco’s already did, you mean?

    • Rob Powell says:

      I agree that TWTC seems unlikely right now to be looking for a suitor, though of course everyone has their price. But I rather doubt they cross the Atlantic. Some sort of cloud services expansion to take fuller advantage of their current network projects would make more sense.

      • beetlejuice says:

        I doubt the Europe thing too. Agree with Jimmy they gotta do “something” though, be another cloud provider just seems ridic. There are so many great choices out there already that you would just be going into another oversaturated and commodity market, think about it as a telecom rep, when was the last time you ever heard any customer say they were really excited to get their cloud services from the same company they buy their transit from? No one ever said to me they wanted as much of their IT infrastructure relying on A/V/Q as possible, they want them to be put in the necessary evil corner because everyone hates them. I predict Enterprise not buying IT from their network provider because most of them suck and take way too long for everything, and then you are stuck with it.

  • brookhaven1999 says:

    Could you elaborate a little more on how you think the
    “continuing NSA fallout” will impact LVLT domestically as well as internationally? Would you expect revenue to decrease as a result? You already said it would make it harder for them to buy another telecom in Europe. Anything else? Thanks.

    • Rob Powell says:

      I think the jury is still out on the idea that US-based fiber operators could face headwinds on international sales due to the NSA thing. I’d think for now it would be more a political/regulatory thing, hence the M&A caution.

  • Prediction says:

    may exceed the calendar 2014 year, but my prediction is that rising interest rates causes substantial hardship or insolvency for several of the pure telecom names mentioned.

    telecom is a huge borrower and only att and vz have real wireless franchises which can replace the melting landline revenue and IP/data price erosion.

    several of these companies have low ROA and rely on debt to generate ROE. run the numbers when the cost of debt triples… as the “i” in ebitda increases, harder to pay dividends, etc. spiral.

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