Yesterday, Zayo Group completed its acquisition of Fibernet Telecom Group, a public company that traded on NASDAQ under the symbol FTGX. Let’s review the chronology of events.
1. February 12: Zayo Group announced it had raised additional equity in a Series B round led by Charlesbank Capital Partners
2. March 3: Zayo Group announced Morgan Stanley Alternative Investment Partners joined the equity round and, all in, $128M was raised
3. May 15: Fibernet reported its first quarter results: Quarterly revenue was $15.6M; EBITDA was $3.2M
4. May 28: Fibernet announces that it has agreed to be acquired by Zayo Group at $11.45/share
5. June 16: , RCN submitted a bid of $12.50/share
6. June 30: Rob Powell on his Telecom Ramblings blog speculated “A bidding war could be in the offing” and added “I wouldn’t put it past TW Telecom to make its own bid, their NYC asset base could use the extra density.
7. July 1: Dave Rusin, CEO of AFS Communications, commented on the Telecom Ramblings blog “With multiples rising, FTGX is worth more than what is on the table.” Rusin speculated that Cablevision’s subsidiary Optimum Light Path was a potential bidder given their “strength, presence and scale in this geographic area”. Rob Powell agreed.
8. July 9: Fibernet announced that RCN was withdrawing its bid to acquire Fibernet
9. July 9: Rob Powell on his Telecom Ramblings blog was perplexed “It is not yet clear why RCN chose not to pursue this deal. I had thought that given the territorial overlap with RCN Metro, the company’s metro fiber division, RCN might have been able to find greater synergies. However, the likeliest case seems to be that incompatibilities became clear during discussions, and perhaps the integration of the two would not have been as easy as hoped. The other possibility is that RCN wished to get outside funding, and did not find it at a price low enough to facilitate a deal.
10. July 9: Dave Rusin, CEO of AFS Communications, voiced his opinion that Rob’s first hypothesis was correct. Speculating that RCN became uncomfortable with the $12.45 price, Rusin opined “Only RCN knows and what they know depends upon their due diligence depth and findings. RCN is not a gun and run company, so I expect they were pretty thorough.” Dave added: “It may be less costlier to replicate a FiberNet offering – after all its not unique or a rocket science – as opposed to the expenditure of cash to buy the company. If on a cash basis you can replicate what FiberNet has done say for 50% less, why buy?”. Finally, Dave concluded “the lack of additional bidders given this has played out in the public has me coming down on the side of RCN making the right decision.”
11. August 13: Quarterly revenue was $15.8M; EBITDA was $3.4M
12. September 9: Fibernet shareholder vote in favor of acquisition. Closing is completed and Fibernet becomes part of Zayo Group.
So what do you think? Was Fibernet “worth more than what [was] on the table”, as one comment suggested. Or did Zayo overpay by a lot per the comment “If…you can replicate…for 50% less, why buy?”.
With the acquisition behind us, I will share our thinking behind the acquisition. Perhaps I’ll also shed some light as to what was happening behind the scenes during the negotiations and the closing process.
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Dan, congratulations to you and the rest of the organization on closing the FiberNet transaction. It was a pleasure to be part of the diligence team. Certainly I believe this was – and will continue to be – a great deal for Zayo. Best, Brian
I was very familiar with Fibernet’s business model and thought that they were a rather risk-averse team. They only incurred expense with adding revenue, a good trait (i.e., Dan’s 2 comments on earnings – rev up .2m, Ebitda up .2m).
In my opinion, RCN did not have the sales force or reach to “replicate” Fibernet’s business model, forget 50%…but not even at 110%. RCN just doesn’t have the same competence as the Fibernet team in doing what they did.
I think that Rob Powell’s second comment was more on the mark…”The other possibility is that RCN wished to get outside funding, and did not find it at a price low enough to facilitate a deal.” Zayo’s ability to secure reasonably priced capital BEFORE it needed it vs. RCN going to market (with bad market timing) when it absolutely needed it, was the key to the deal. Thus, Zayo won the battle before it was fought.
Congratulations to Zayo on the win ! I think there are some real synergies and cost savings, and the deal provides some additional reach into new markets and new customers.
Congrats on closing the deal!
Great, now I get to not sleep all week while you blow giant ragged holes in my speculations, one by one…
Congrats Dan on closing a very attractive, game changing deal. Look forward to seeing how you leverage those (very) nice fiber and collo assets.
Rob…always good comments…thats why we read TR! Now get some sleep
Dan, I have to hand it to as you continue to exploit simplicity and begat efficiency. Zayo is certainly a vertically positioned player.