M&A Journal: Sidera For Sale?

A recent report by Cowen and other tidbits from the grapevine say that Sidera Networks and its northeastern metro and regional fiber footprint may be up for sale again.  ABRY Partners bought the former RCN Metro division just last year as part of the larger RCN acquisition, and had separated out the metro fiber assets and said it intended to use them as a consolidation platform – and in fact bought the LIFE assets out on Long Island to start the ball rolling.  What’s changed since then?

The main thing is probably pricing for such assets, which by all accounts has gone up since last fall.  That makes it harder to find more inexpensive fiber assets to roll up while making the option of cashing out more attractive.  Not to mention the fact that most of the easy targets were snapped up by other strategic and private equity buyers who were thinking the same thing during 2010.  The M&A environment lately has shifted, and there are fewer small candidates to roll up and more larger strategic buyers looking for medium sized morsels than in 2010.

Sidera’s combination of assets should be very attractive to strategic buyers.  The very dense metro footprint in the NYC metro area as well as good coverage in the other tier 1 cities of Boston, Chicago, Washington DC, and Philadelphia covers some of the most lucrative markets around and would be very hard to build again from scratch.  So who might be a buyer?  Here are a few thoughts on the potential interest from the most likely suspects IMHO:

TW Telecom – I’ve always liked this combination just because Sidera’s northeastern tier 1 footprint fills the biggest remaining hole in TW Telecom’s national coverage like the last piece to a jigsaw puzzle.  Also, the time does seem ripe for some sort of aggressive move following the GLBC/LVLT and CTL/SVVS deals.  But the price wouldn’t be cheap, and TW Telecom has had the opportunity to bid on these assets (whole or in part) more than once in the past five years and simply hasn’t taken the hook.

Zayo – In some ways, the fit here is better than it is for TW Telecom, as in addition to the Tier 1 markets, Sidera’s customer base and regional fiber into various tier 2/3/4 markets in New England mirror Zayo’s other purchases.  The DC/MD/PA coverage overlaps nicely and would offer some synergies.  It would be the Zayo’s largest purchase to date, but I wouldn’t put it past Dan Caruso at all to go for it.

Level 3 – Given the GLBC deal and the importance of not screwing it up, they probably aren’t in the picture at all even though the assets fit very well on paper.

Lightower – These guys and the private equity backing them up have been the most active consolidators of fiber in the northeast for several years now.  Buying the Sidera assets would fill in many of their remaining holes, give them a dominant position in competitive fiber in New England, and expand their range further south along the I-95 corridor and out to Chicago.  That said, Sidera might be a bit larger bite than they are ready to chew right now.

AboveNet – While it would be entirely possible, I don’t see AboveNet winning an auction for Sidera. Of all these potential buyers, AboveNet seems the most at home building rather than buying when it comes to Tier 1 fiber.  While they certainly could use Sidera’s dense NYC (and other Tier 1) footprint, they don’t need it as their own is very extensive already, and they have shown little interest in regional fiber to and within the smaller cities in New England.  They’d certainly buy it if the price were cheap enough, but I don’t think it will be

PAETEC – I don’t think they are aiming at the northeast right now – the west seems more likely.  Also the assets are less aimed at things like central office connectivity and EoC than the McLeodUSA and Intellifiber assets were.

EarthLink – As with PAETEC, these assets don’t really fit the same mold as Earthlink’s other more-CLEC recent purchases (Deltacom, One Communications).  Of course, they’ve got the cashflow to put behind a deal if they do have interest.

Any Cable MSO – I know this one will come up, and one can definitely make a case for it.  But if it were going to happen, I would have expected it to happen last year with the full RCN asset base for which the fit was better and the price probably more attractive.  Yet if indeed someone like Cablevision’s Optimum Lightpath decided to widen its outlook on the world beyond the NYC metro area – this would surely be an optimal way to do it.

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Categories: Mergers and Acquisitions · Metro fiber