Collective Fiber Network to Reach 42k Route Miles
On October 7th, Zayo Group announced its agreement to purchase Seattle-based 360networks in a deal set to close in early 2012. The Louisville, Colorado-based Zayo Group has actively pursue deals since its inception in 2007, 360networks represents its seventeenth acquisition in four years.
360networks operates an intercity and metro fiber network of 18.5k route miles across 22 states, providing fiber-based bandwidth, carrier-neutral colocation and other fiber-based solutions to its medium and large enterprise clients. Its network connects more than 70 markets across the United States, including new markets for the Zayo group: Albuquerque, Bismarck, Des Moines, San Diego, San Francisco and Tucson. Following the deal’s close, Zayo’s collective fiber network will extend 42k route miles and nearly 2m fiber miles.
There is much familiarity between the two companies, as earlier in the year they entered into an agreement under which the Zayo Group provided metro dark-fiber connectivity to 360networks. The deal expanded 360networks’ service area into new markets and thousands of on-net buildings, and also increased its delivery speeds for private line, Ethernet and IP transit services.
In addition to its bandwidth infrastructure services, 360networks is a wholesale service provider of VoIP services that include IP origination and IP termination. It is a registered CLEC in 36 states covering 1,606 rate centers that serve 80m people and recently expanded its VoIP presence in Houston, adding 48 rate centers and around 4.5m people to its coverage area.
The Zayo Group has indicated that it will spin-off 360networks’ VoIP operations into its wholly owned subsidiary, Minneapolis-based Onvoy Voice Services, which offers a portfolio of wholesale services to wireline and wireless providers. Onvoy has been in business since 1992, and was one of Zayo Group’s first acquisitions back in November 2007. Zayo eventually spun-off Onvoy into a separate entity back in March 2010.
While financial terms of the deal were not initially released, Zayo recently reported in an SEC filing that it will pay $345m for 360networks, or approximately $18,649 per fiber route mile. The purchase is Zayo's largest acquisition to date, five times larger than its 2010 purchase of AGL Networks for $71.5m.
Given that there is no public information on 360networks’ revenue, we don’t know for certain what type of revenue multiple was paid. In priced fiber network deals over the past year however, we’ve observed average revenue multiples of around 1.2x. If Zayo paid a similar multiple, 360networks will more than double Zayo's top line with the deal. As of June 30, 2011, Zayo’s annual revenue was $287.2m. An estimated multiple of 1.2x revenue paid for 360networks would imply revenues of approximately $288m.