On Friday, Reuters put out an article citing sources that Verizon is looking to sell off its enterprise assets. Specifically, that would mean both the cloud/data center stuff and the global networking business it has run since buying MCI Worldcom. If such a sale actually were to happen, it would be one of the biggest shifts in the world of telecom and internet infrastructure since the dot-com crash.
But who might actually buy it? The list isn’t very long, as there are only so many with both the interest and the resources. Some thoughts on the usual suspects:
- Comcast – They are probably the only Cable MSO ready to take on something like this. They have expressed interest in cracking the large enterprise market, and this would take them all the way there in one inorganic lunge. They have the resources to make it happen, and unlike Verizon, they really like the enterprise biz. It’s easy to like something you’ve been growing at a 20%+ clip. But would they be willing to take on all that baggage and history when the organic route has worked so well at the smaller side of the enterprise equation? I’m going to say yes, if the price were right they’d do it. But I rather suspect the two companies would have trouble coming to agreement on that price.
- Level 3 – They probably have the most possible synergies and the most overlap of any strategic buyer based in the US when it comes to buying Verizon’s enterprise assets. While their integration history has been, let’s say, colorful viewed over the last 10 years, they have learned a lot and probably have more experience than anyone in what would be needed. They could also probably raise the money to make it happen. That being said, it would be a big risk at a time when Level 3 no longer needs to take the sort of risks it used to take when chasing the scale to service the debt it came out of the dot com era with. They’d have to look seriously at it, but again, I suspect that agreement on a price would be tough.
- International buyers like NTT, Orange, Teliasonera – I rather suspect that Verizon’s big US federal contracts would make it a bit more difficult for an international player to buy the company. But that doesn’t mean they wouldn’t try. Each would have significant synergies to derive internationally, and each would instantly gain heft in the US markets. However, they’d have to want it more than any of them seem to make the leap.
- CenturyLink – Since they have no wireless business, staying in the fiber and data game is necessary for CenturyLink. They have been rumored to be looking to sell their own data center business, but the option to gain scale through the purchase of Verizon’s can’t be ignored. It is said they already talked about this and didn’t make the move, but such negotiations could be restarted easily enough. CenturyLink would have less of a culture difference to overcome, and could find the international networking business interesting as well. That being said, it doesn’t feel like they’d be too eager to try.
- Zayo – After so many acquisitions and so much inorganic growth, one can never count out Zayo’s appetite. In this case, however, I think Dan Caruso and crew would probably do more than merely hesitate. All their acquisitions have been about underdeveloped assets, and of all the words one might use to describe the assets of Verizon’s enterprise business, underdeveloped isn’t one of them. That being said, one could argue that now that they have that very efficient, fully national asset base and a foothold in Europe, buying vast amounts of large enterprise revenue to integrate onto it could be an interesting thought.
- Private equity – This is, I think, the easiest option to envision happening. The idea of taking Verizon’s enterprise business off of Verizon’s hands and re-shaping it in the mold of its smaller but more dynamic brethren would have to appeal to the private equity guys who have watched Zayo and other infrastructure players redefine the space. On paper, it would have to look like a pretty interesting way to put money to work.
And what might a buyer face? For a strategic buyer with a global networking business of its own, this would be the mother of all integrations, the biggest and messiest we have seen. Even the original purchase of MCI Worldcom wouldn’t match up, as Verizon at the time didn’t have that much parallel infrastructure. The assets to be integrated are fully global, has a full spectrum of legacy and state of the art assets at all layers, and a portfolio of pretty much every service and product that is still being sold. There would be tremendous synergies possible, but it would not be a project anyone could possibly take lightly. For private equity or a strategic buyer with less overlap, the challenge would be to do more with the business than Verizon has managed to. Forcing change on the existing organization from the outside might be a pretty difficult project though.
But like we have seen with Sprint’s wireline business, finding a price that both can agree on may be very difficult. Having that network as their own has value to Verizon’s wireless business, and to do more than talk about things and actually monetize it will take a pretty good price tag. And I’m not sure any of these potential buyers will be on the same page.
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