Following the AGL deal, it appears that indeed the M&A market for fiber is going to continue heating up. The latest news comes from Rochester, where northeastern metro operator Fibertech has now quite publicly put itself up for sale. I had heard whispers that this move was coming, but hadn’t realized plans had advanced this far. The driver is simply that Fibertech’s largest backer, Nautic (51%), wants to monetize the asset. Interestingly though I hear that the other backer, Bank of America (49%), does *not* want to exit and might prefer to invest more rather than less.
Fibertech operates metro networks in 24 cities, most of which are tier 2 and 3 markets in New England, upstate New York and down the I-95 corridor to Maryland, plus Pittsburgh, Columbus, and Indianapolis. Overall, they boasted more than 5000 route miles and 3800 on-net buildings as of December. 2009 revenues were apparently around $67-68M, up 25% from the prior year. That’s some very solid growth of course, but it remains to be seen what kind of multiple Fibertech might get for its assets. If we guess 35% EBITDA margins or $23-24M, a multiple of 8-9 would value the company at around $200M give or take. But that’s just a back of the envelope WAG.
So who would be the likeliest buyer of these assets? The RBJ article above starts with PAETEC (news, filings), which is not unthinkable but is mentioned mainly because it is also based in Rochester and therefore of interest to the publication’s readers. Also mentioned are abvt and Zayo. I doubt that Abovenet will be the buyer, I don’t think they intend to step outside the Tier-1 markets they prefer. Zayo is definitely a possibility even though they will be busy with AGL. In fact they are probably a front-runner, however there are other buyers in my opinion that are just as likely.
The first rather obvious potential buyer is TW Telecom (NASDAQ:TWTC, news, filings) for whom these assets would fit very nicely, and they wouldn’t need to find funding for it either. The second, which is perhaps less obvious, is the independent fiber arm of Cavalier: Intellifiber. Intellifiber’s intercity fiber footprint has uneven metro depth, being very deep in the PA/MD/DE area plus islands of coverage in upstate NY and the Midwest. Overlaying the Fibertech assets onto that footprint is visually quite pleasing.
And another set of assets that matches up well is RCN Metro. No, not as a buyer since RCN is for sale already, but as a platform for their likely buyers at ABRY. For instance, if they are serious about the metro fiber space as well as the triple play business they are more familiar with, ABRY could simply buy out Nautic’s share or they could come to some other arrangement with Bank of America.
Further possibilities with a good asset match include Lightower and Level 3. All in all, Fibertech’s assets will probably see many prospective buyers kicking the tires over the next month or two.
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Categories: Mergers and Acquisitions · Metro fiber
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What about Windstream as a potential buyer?
I don’t think it works very well geographically, but it’s not unthinkable. Any particular reason you might see Windstream as a buyer?
No mention of One Communications. Are they viable?
To be honest, One Communications plays its hands so close to its vest that I don’t really know. They haven’t had a strong fiber bias historically, however their backers do like fiber based businesses as well. They certainly could be involved if they wanted to. I’d welcome an outside opinion on this one…
While you never want to rule anyone out, One Communications would need to change their business plan to leverage 3800 OnNet buildings. they’d be a good customer to the folks who buy FiberTech but not a likely buyer. I don’t see Paetec either as I think they see their growth in a widening (new geographies) rather than a deepening (more owned fiber within footprint) strategy.
Level 3 need another metro company like it needs another Brit on the payroll which maybe makes me look hard at the possibility.
TWTC makes alot of sense and is the most suited to make a quick decision.
Intellifiber hasn’t gone deep into the metro side so it is a little departure but perhaps a smart one.
Zayo would be smart to take this purchase seriously as it would more than double their OnNet buildings.
http://www.businessinsider.com/akamai-loses-some-hulu-traffic-to-level-3-and-limelight-networks-2010-3
My opinion, FiberTech would not consider an 8-9x offer, given AGL v. FiberTech in quality/value comparisons.
I know of a deal brewing elsewhere — offers are in the teen multiples … I am watching it closely. All metro!
I see PE firms valuing metro assets higher over strategics … PE knows that strategics can either pay now or pay a lot more later. You can’t build what FiberTech owns at an 8-9x multiple which seems to always be the fly in the ointment when Bankers try to draw apples and oranges comparisons between fiber-less or IRU strands and metro fiber sheath owners. Strategics still think everyone is distressed circa 2001-2003 or can’t explain to Wall Street paying a higher multiple then they are trading at if they are public– which is why I favor PE’s playing the arbitrage for a few years for big gains.
There is also a play in this just to take out Nautic if B of A wants to stay in — which tells you something about the value/quality of FiberTech when B of A is not only willing to stay, but willing to invest more by staying.
I always liked the FiberTech Business Plan & Model for some reason ….
What does this mean for the Fibertech team and its employees?
RE: Joshua T…….. Hopefully business as usual for all of the Fibertech team and employees. They have such a great product and moral, it would be horrible to see that disolve with a merger / buyout.
Honestly don’t see One Comm even remotely in the running to purchase Fibertech…….. they are lucky enough to even be in business still.
TWTelecom is a good possibility…… best bet would be a new investor to take over the growing company.