Zayo Builds Into Alabama, Reveals 360Networks Financials

Zayo is expanding organically innto Birmingham Alabama, according to a press release today. They will be adding 12 miles of fiber that will be the start of a metro presence in the central business district and out into Homewood and Lakeshore. The expansion should be in place by the end of the year, and is for a large wholesale customer.  That’s the foot in the door of course, we can expect Zayo to put more money into the city during 2012.

Adding Birmingham as a market complements the company’s Atlanta, Nashville, and Memphis presence, but I can’t help but wonder when Zayo will finally get around to moving further south into Florida.  I’ll bet they find a way to do that in 2012 as well.

And last week Zayo quietly filed real financials with the SEC for 360Networks, which they agreed to purchase last month. During the first six months of 2012 360Networks pulled in $44Mm in revenue and earned $6.2M. They didn’t compute EBITDA specifically, however given COS of 17.5M and SG&A of 13.8M, one can derive roughly $12.7M in EBITDA during that period or a run rate of perhaps $26M annually when purchased.  Not all of that goes to Zayo proper, the VoIP bits will be spun off and we don’t yet know just how big those are.

What jumps out at me is that not only was 360Networks nicely profitable, it was growing at an impressive double digit rate – $67M in 2009, $76M in 2010, and a run-rate of nearly $90M in 2011. They were debt free and also sitting on $98m in investments, the largest component of which seems to have been shares of a Canadian energy company to whom they sold a subsidiary full of a rather large pile of tax assets. I wonder if that bit comes to Zayo also?  [EDIT: A rereading of the 8-K suggests that no it doesn’t.]

So the EBITDA is perhaps a bit lower than I might have expected given the $345M purchase price, suggesting an EV/EBITDA multiple in the range of 12.  But then, the intercity assets are quite unique and the company was also growing organically rather more quickly than I had thought too.

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Categories: Mergers and Acquisitions · Metro fiber