Regional fiber build-outs, M&A big in 2010
by Rich Karpinski December 29th, 2010
The Wall Street Journal today took notice of a trend we’ve been tracking all year: the rapid build-out and mergers and acquisitions activity in the regional fiber network market. At least some of this activity was driven (yes we can give some credit) to the broadband stimulus effort, as fiber networks jumped at the chance for federal funding. But much more interesting was the private market activity, as entrepreneurs looked to the CLEC market as a flourishing opportunity once again and new services like carrier Ethernet and MPLS drew strong customer uptake — not to mention the exploding demand for fiber capacity in the wholesale and mobile backhaul markets.
Today’s Journal story summed it up like this:
Private-equity investors have been piling in, and the price for metro-fiber companies has shot up. Gillis Cashman, a partner at private-equity firm M/C Venture Partners, said buyers were paying five to seven times a metro fiber company’s cash flow in acquisitions from 2007 to 2009. These days they are paying more than 10 times, he said.
The deals have turned a market that once had many small participants and a few giants into one made up of a handful of regional and national players. Analysts say the consolidation has helped stabilize the prices fiber owners can charge customers like banks, phone carriers and universities that lease their networks.
Among the deals we’ve tracked at Connected Planet just this year include Lightower’s acquisition of Open Access; Zayo’s purchase of American Fiber Systems; and Paetec’s acquisition of Cavalier Telephone, which included a significant wholesale fiber component. We even talked with investor M/C Venture Partners in two separate Q&As this year as we saw this trend accelerate, see: Venture capital flooding into telecom again, from May; and A VC’s view: Buying and selling telecom providers, from November.
M/C Venture’s general partner Gillis Cashman, general partner described to Connected Planet the difference between fiber investing today and in the past: “It’s a different demand set than in 1999 to 2000,” he said. “That was about building out the core. This is really about the edge. Capital investment is tied to contracted revenue and carriers with core backbone networks are well positioned to address the edge.”