In a surprise Thanksgiving-week deal, Zayo has announced that it has entered into an agreement to buy Allstream from MTS. The purchase will take Zayo into the Canadian bandwidth market at one fell swoop.
Zayo is after the company's fiber and colo, as you might imagine. Allstream has 9000 metro route miles in Toronto, Montreal, Vancouver, Ottawa, and Calgary, connecting some 3,300 on-net buildings. They also have 20,000km of intercity fiber stretching from coast to coast and colocation in Toronto, Montreal, and Vancouver.
The purchase price is CAD$465M, which works out to less than 5x pre-synergy EBITDA. Allstream has about CAD$600M in revenue and adjusted EBITDA of about $100M. But Zayo will be not be keeping all of that, but rather is aiming its Canadian business at $300M in revenue with a 40% EBITDA margin. That will take Zayo from nowhere to national in one deal.
The other half will be organized into voice/UC and SMB sections, and will surely be divested in some form much as Zayo has done with other assets. Onvoy is one example, which itself is now rolling up voice businesses and might even be seen as an acquirer of that piece of Allstream at some point.
MTS had been looking for a buyer for Allstream for quite some time (and yes, Zayo was on my list of potential acquirers at that time too). They had a deal with the Egyptian tycoon Naguib Sawiris back in 2013 for $520M, but regulators objected.
Canadian regulators relaxed the rules governing non-Canadian ownership of infrastructure a few years ago, making this sort of thing possible. But, assuming the goes through, Zayo's purchase will be the first national fiber asset acquisition by a US operator north of the border that I can think of.
Yet it might not be Zayo's last. The Allstream assets look like they'd be a good roll-up platform of their own for other Canadian infrastructure assets.