Telecom M&A in the United States has shown surprising life this year, even as the country tries to push through a jobless economic recovery. CenturyTel’s pending takeover of Qwest Communications International Inc. is the prime, and possibly last, example of major mergers in 2010. But smaller deals, especially on the fiber front, continue to proliferate.
“This is probably one of the biggest years for fiber M&A,” said Gillis Cashman, general partner at private equity firm M/C Venture Partners, whose portfolio includes acquisition-hungry fiber operator Zayo Group.
That’s because demand for wireless backhaul capacity has erased the glut from the early part of the decade, said ATLANTIC-ACM analyst Lalitya Sastrawinata.
“Other applications, such as consumer video, mobile Internet access, data storage and recovery services, all are driving significant demand for fiber,” Sastrawinata added.
There could be more fiscal drivers to consolidation, as well: “I’ve got to think that some of this has to do with capital gains [taxes] going up next year,” Cashman remarked. “Tax implications are driving peoples’ decisions to sell now versus wait another year or so.”
John Scarano, COO of Zayo Group and president of Zayo Bandwidth, which just bought American Fiber Systems, its 15th acquisition since 2007, said that rising valuations are catching the eyes of smaller operators: “Some owners are frankly tired of the operations and want to move on, and there are owners being opportunistic, with the purchase prices having been bid up in last couple of years.”
A more unified fiber sector bodes well for the industry overall. In other telecom segments, such as the CLEC and enterprise worlds, companies combine to rationalize costs, Cashman explained. On the carrier and content sides, “the more scale you have, you’re rewarded.” Zayo, for example, now has more footprint to sell thanks to the American Fiber Systems deal and stands to profit as a result, Sastrawinata said.
Announced on June 30, Zayo's AFS acquisition “signals a new course of fiber player consolidation," Sastrawinata added. "With fiber demand continuing to increase and the economy in a halting recovery, companies like AboveNet, tw telecom and other RLECs could be making similar moves in the near future."
Meanwhile, some rivals are reported to be on the auction block – FiberTech, Alpheus Communications, Kentucky Datalink and Intellifiber have been rumored to in recent weeks to be open to fielding offers.
“Metro fiber is very hot right now with private equity and there seem to be some big ideas floating around backed by some very interesting money,” industry blogger Rob Powell noted in a recent post.
Indeed, on July 20, regional operator NTELOS Holdings said it’s buying FiberNet, a division of privately held CLEC One Communications. The $170 million deal gives NTELOS another 3,500 miles of metro and regional fiber throughout West Virginia and the surrounding region, enabling the provider to offer more high-bandwidth services to sell to large enterprises, government customers and carriers, the company said.
The M&A fever reflects the importance of fiber to operators' business models: It’s the must-have commodity of the future.
“I think it’s great for the industry,” said Cashman.
Link
“This is probably one of the biggest years for fiber M&A,” said Gillis Cashman, general partner at private equity firm M/C Venture Partners, whose portfolio includes acquisition-hungry fiber operator Zayo Group.
That’s because demand for wireless backhaul capacity has erased the glut from the early part of the decade, said ATLANTIC-ACM analyst Lalitya Sastrawinata.
“Other applications, such as consumer video, mobile Internet access, data storage and recovery services, all are driving significant demand for fiber,” Sastrawinata added.
There could be more fiscal drivers to consolidation, as well: “I’ve got to think that some of this has to do with capital gains [taxes] going up next year,” Cashman remarked. “Tax implications are driving peoples’ decisions to sell now versus wait another year or so.”
John Scarano, COO of Zayo Group and president of Zayo Bandwidth, which just bought American Fiber Systems, its 15th acquisition since 2007, said that rising valuations are catching the eyes of smaller operators: “Some owners are frankly tired of the operations and want to move on, and there are owners being opportunistic, with the purchase prices having been bid up in last couple of years.”
A more unified fiber sector bodes well for the industry overall. In other telecom segments, such as the CLEC and enterprise worlds, companies combine to rationalize costs, Cashman explained. On the carrier and content sides, “the more scale you have, you’re rewarded.” Zayo, for example, now has more footprint to sell thanks to the American Fiber Systems deal and stands to profit as a result, Sastrawinata said.
Announced on June 30, Zayo's AFS acquisition “signals a new course of fiber player consolidation," Sastrawinata added. "With fiber demand continuing to increase and the economy in a halting recovery, companies like AboveNet, tw telecom and other RLECs could be making similar moves in the near future."
Meanwhile, some rivals are reported to be on the auction block – FiberTech, Alpheus Communications, Kentucky Datalink and Intellifiber have been rumored to in recent weeks to be open to fielding offers.
“Metro fiber is very hot right now with private equity and there seem to be some big ideas floating around backed by some very interesting money,” industry blogger Rob Powell noted in a recent post.
Indeed, on July 20, regional operator NTELOS Holdings said it’s buying FiberNet, a division of privately held CLEC One Communications. The $170 million deal gives NTELOS another 3,500 miles of metro and regional fiber throughout West Virginia and the surrounding region, enabling the provider to offer more high-bandwidth services to sell to large enterprises, government customers and carriers, the company said.
The M&A fever reflects the importance of fiber to operators' business models: It’s the must-have commodity of the future.
“I think it’s great for the industry,” said Cashman.
Link
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