I hope everyone had a great Thanksgiving holiday! The first day back we have some fiber M&A to take a look at. Zayo has struck again, announcing a definitive agreement to buy Spread Networks.
Spread Networks is one of the more unique assets out there of course. It is built around a single, unique longhaul fiber route between New York and Chicago during the early days of the low latency trading boom. Cutting the straightest fiber path between 1400 Federal Blvd in Carteret and 350 Cermak in Chicago that has been managed (at 825 route miles), they quickly drew top dollar from the financial world.
Some of the lustre came off as microwave options did it faster, but the fiber route nonetheless remains a key piece of the puzzle of US infrastructure. On the other hand, longhaul routes themselves have been getting shinier over the last few years, so some of it balances out. With 432 fibers in the cable, 75% which remain untouched, the network can be a key piece of the diversity equation for more than just the traders of Wall Street. And when combined with Zayo's other longhaul assets, there are opportunities for other ultra-low-latency offerings to the west coast and beyond.
So now it will soon be part of Zayo, which is paying $127M in cash for the business. For that price, they gain Spread's $22.8M in annual revenue expected for the full year 2017, upon which they will generate $7.5M in EBITDA - which works out to a multiple of just under 17 for the curious. Zayo expects to stretch that EBITDA to $10.5M by September of next year through cost synergies and organic growth. But they are still paying a hefty premium, which indicates that Zayo feels the asset is underutilized and there is more potential yet to be unlocked by owning it.
The deal is expected to close sometime in calendar Q1, or fiscal Q3 for Zayo I guess.