Industry Spotlight: Blue Owl Takes the Helm at South Reach Networks

In one of the summer’s most interesting fiber infrastructure acquisitions, Blue Owl Digital Infrastructure acquired South Reach Networks to go with its existing portfolio company Dark Fiber & Infrastructure.  South Reach operates fiber along the east coast of Florida as well as in the metros of Miami and Boca Raton.  Just what do they have in mind?  With us today are CEO Scott Bergs and CRO Mike Sevret to talk about the acquisition and the company’s plans for the future.

TR: What was the impetus for this deal?  What was South Reach Networks looking for, and what did Blue Owl see?

MS: I joined as President in 2019, the company was owned by Turning Rock Partners. The plan was always to continue to grow  & expand the  fiber & network assets, and eight months later we acquired the Resurgence (Jacksonville to Miami) fiber & colocation assets. So from that onset, we continually focused to scale the business, customer base by   growing our On-Net footprint into key data centers, cable landings, supporting  new and existing customers across many verticals, by adding reach, new products and staying nimble for our growing customer base. With that continued growth and success over several years. I am extremely  proud of what our team has accomplished and excited about this next chapter working with Scott and Blue Owl Digital Infrastructure.

SB: From the Blue Owl point of view, we had been aware of the asset and the amazing job that Mike, Jason and the team have done to continue to grow and evolve South Reach Network. Blue Owl’s Digital Infrastructure Group, which was formerly called IPI Partners before being acquired by Blue Owl in January, is completely dedicated to the development of communication infrastructure, both with powered shell data centers and the core communication infrastructure to support those data center clusters. They made an investment in Dark Fiber and Infrastructure (DF&I) as its first portfolio company back in 2020 to specifically address the communication infrastructure needs. The bulk of that network, obviously, is focused in the Northern Virginia area with the goal of continuing to expand both the reach, the connectivity, and the diversity of the customer base within that region.  But then it was also to replicate that same core infrastructure development to support the growing needs of AI and cloud. So when we were made aware that South Reach was going to be available, we made an aggressive attempt to evaluate the network and the growing commercial opportunity within the broader Florida region, and fortunately we were able to get a transaction completed.  And we’re just really excited about the entire team, the customer base, the assets, and the opportunity we have to continue to grow them.

TR: Scott, you are serving as CEO of both DF&I and South Reach.  How will you handle that dual role?

SB: I’m really excited to continue to execute on some of the plans that the South Reach team has already put together, and then some additional ones that we see as future growth opportunities. I do have that dual role of serving as the CEO of DF&I as well as South Reach, and within the broader Blue Owl Digital Infrastructure portfolio what we have is a management group that can facilitate assets within multiple different markets.  Whether it’s a greenfield build or this kind of existing asset acquisition, we are able to work with the local team and assets to continue to help to grow them. But while we have that shared resource, we will continue to operate the two businesses independently while at the same time looking for synergies where we can solve more problems for our customers.  That could be our end-user customers or partners like the data centers themselves, the FTTH providers, subsea cable providers, or others looking for additional capacity and infrastructure.

TR: Do you foresee further inorganic activity?  How do you view M&A in today’s market?

SB: We very much have an aggressive appetite. We believe that the need for additional infrastructure to support the overwhelming demand that’s generated by AI for both new data centers and communication infrastructure is just going to continue to grow. As a result, we are actively pursuing organic build opportunities, new users for our existing infrastructure, and additional acquisition opportunities where we can hopefully make one plus one equal three or four.

MS: The South Reach story gained a great asset when we acquired the Jacksonville to Miami network, which today is just over 370 route miles. It’s 100% underground with protected rights of way, and our main focus has been supporting both the metro & long haul backhaul traffic for the both the domestic and subsea carriers from Jacksonville all the way down to Boca Raton and Miami.  With the new  subsea cables that have been announced, set to land  over the next 12-24  months, this  will be another  main driver for our business and network focus  at South Reach. But also, as Scott mentioned, another offshoot has been to act as a catalyst for the fiber to the home, HOA, and the MDU model.  Does South Reach go into the residential communities today and provide that service? No. But we have metro rings in Miami, and Boca, and on our long haul backbone up the coast, we own  five stand alone co-location facilities that also serve as middle mile Edge Colos, Regen and  head ends to support  certain verticals in the space.  A few years back, we decided to light up the network , offering 10G up to 400G transport.   So there’s a lot left to do in Florida

TR: Do the opportunities you see come from within your existing footprint, from adjacent markets, or other geographies entirely?

SB: I’d say all of the above. Obviously, we must prioritize the immediate needs that the South Reach team has been cultivating over the last several years. They’ve got established timelines that we must meet or exceed, so that whether it’s a new subsea landing station or another data center that’s going into production, the long pole in the tent’s never going to be the communication infrastructure. That is our first priority. Our second priority is to continue to look for adjacencies. State lines tend to be what people focus on, but we are really more focused on where in fact the clusters of new capacity requirements are. We are being very opportunistic about where those greenfield builds might be and what we might add on inorganically through acquisition that could even further bolster the overall operating footprint and solve more problems for our customers.

MS: I think that for the past 20-plus years, Florida has always been looked at as a Tier 3 market. But since COVID and the growth of Florida in population, in businesses and enterprises, along with the growing data center and subsea traffic,  I think now the state is getting a lot more attention I think you’re going to see tremendous growth from not only new fiber assets and digital infra, but  new greenfield data centers that are being announced in Florida currently.  There is a lot of growth to be had for South Reach, which means new routes  are needed.  We have a great asset in Florida, and are extremely  excited about the Blue Owl acquisition.

TR: SRN’s longhaul route was originally built out by Allied Fiber with a new design enabling easier breakout along the path.  Has that design been useful?

MS: Yes, no doubt. Our COO Jason Cohen was part of the original network when built, , so he knows every inch of the network. The fiber network has state-of-the-art performance, along with  having our (5) owned  edge colos , roughly  1,200 square feet and that ability to break in and out of the fiber means a lot, especially in the middle part of the network — call it St. Augustine to Fort Pierce.  In that region you have regional operators, utility companies, and FTTx providers that have really seen the value in our data centers. They can go in, they can take space and power, and they can use our colo facilities for many purposes, local head end, middle mile aggregation nodes or regen. . So, yes, I think when the original network  was designed  originally, they were thinking way ahead into the future. It took some time, but clearly now there is a need to continue to support the current and future demand,   , and it’s worked out great.

TR: How critical is demand from AI in your plans for South Reach?

SB: Well, it’s one leg to the stool in the South Reach story. Clearly AI and even just broader cloud requirements just continue to go up and up. But another piece of that is only tangentially related to AI.  Your fiber-to-the-home providers, your community providers, they’re just looking for connectivity with efficient backbone access to those content access points and interconnection points. South Reach is just so well positioned to be able to capitalize on that. Being able to reach into the aggregation points in Jacksonville, Boca, and in Miami and looking at alternative ways to reach those points and adding more of them just makes it that much more flexible for all of those different customer vehicles.

MS: There are  several new subsea cables announced and  that are landing in Florida, with connections from Latin America, the Caribbean and Europe. These are  larger fiber pair systems with  high capacity transport needs . These new systems, once they land, require  the carrier or the subsea operator to take on more capacity  than they normally would have 10-20 years ago.  At the same time, the capacity for lit traffic that they’re passing has drastically gone up over the years because of the technology.  With our current and new fiber routes, having  an all underground low-loss fiber network,in a protected right of way, spanning  from Jacksonville to Miami puts us in  great  position for that backhaul traffic.

TR: Does Blue Owl see near term opportunities beyond Florida and Northern Virginia?

SB: Wherever there is a customer need that has not yet been fulfilled, we are looking to see if we can be the best solution for that unmet need.  As power generation capacity moves out of the historical primary data center clusters into new regions, that is where the aggregation points are being built. There isn’t sufficient existing communication infrastructure in those areas to meet both the capacity as well as the architecture needs, which means new builds will be required. So we are looking in multiple markets to be able to execute on that.

Every time I’ve been involved in one of these large growth periods within the communication infrastructure industry, I think this is a new peak. Yet, the next one seems to exceed even the last. Having been doing this for over 30 years, it seems I’ve always been trying to estimate demand. I’ve been wrong every single time, and I’ve never once been high. So I think that opens up an exciting world of opportunities for us to do lots more things.

TR: How do you approach finding and addressing opportunities in a marketplace with this kind of potential?

SB: In order to find a good business opportunity within a high-growth industry, you have to have a few key pieces. It starts with identifying the business opportunity of course.  The second thing you need is someone who’s got a deep reservoir of capital that’s committed to this market opportunity. Blue Owl absolutely provides that for us in a very intelligent, supportive manner. They are helping us with the underlying information, data, and research that allows us to be smart about how we build these networks, so that we’re putting them in the right place at the right time in the right sequence and priority. And then the third thing that’s so critical is to have an operating team that knows how to execute. At the end of the day, the trust that we get from our customers is built upon being able to deliver on time or ahead of time.  And then they are looking for someone who has the people with the experience and the dedication, and commitment to be able to operate over that long term.

With those three things together, we now have a really dynamic team to be able to execute on this once-in-a-generation opportunity for further growth. The sky’s the limit. We’re really excited.

TR: Thank you for talking with Telecom Ramblings!

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Categories: Fiber Networks · Industry Spotlight · Mergers and Acquisitions · Metro fiber