The Gores Group Doubles Down on Fiber with New Buy

Private Equity Firm to Buy Alpheus Communications

The Gores Group, a Los Angeles-based private equity firm has signed an agreement to purchase Alpheus Communications, a fiber network and data center operator in Texas. Alpheus was sold by two Texas-based entities, private equity firm Genesis Park and El Paso Corporation, a Fortune 500 energy company.  El Paso started Alpheus around 2000 as El Paso Networks, and Genesis Park later acquired controlling interest of the company in 2004.

In the deal, the Gores Group will acquire a fiber network that includes 2,800 route miles of long haul fiber and 3,250 metro route miles in major Texas markets—Dallas, Fort Worth, Houston, Austin and San Antonio.  Alpheus provides long-haul telecommunications fiber transport across Texas, targeting telecom carriers and enterprise customers across a number of sectors. It customer base includes 31 wireline and wireless providers in the state. In addition to providing fiber transport, Alpheus owns and operates data centers and offers collocation, hosting and VoIP services. 

Over the past few years, Alpheus has invested heavily in the Houston fiber ring and has expanded its footprint through a number of acquisitions. In January 2010, it acquired a major fiber ring in North and West Harris County in the high tech FM249 areas, a location near several wireless tower sites. It continued its expansion in 2011, purchasing dark fiber rings in East Dallas County and Downtown Fort Worth from fellow Texas provider, Fiberlight.  In addition to growing its fiber footprint, Alpheus has used M&A to build its data center business including the acquisition of Aspen Communications and its IT facilities in 2007.

Alpheus will be added to an eclectic roster of over 80 companies owned by the The Gores Group. The private equity firm invests in a variety of industries from telecommunications to retail, which combined bring in over $15b revenue per year. Its portfolio of companies ranges from an envelope producer, National Envelope, to a fashion designer and manufacturer, Big Strike, and a cable provider, CoBridge Communications.

The Gores Group plans to integrate Alpheus with another company in its portfolio with an expansive fiber network, First Communications. The combined fiber assets between the providers will total 10,500 fiber route miles in Texas, the Midwest and the Mid Atlantic. First Communications offers long haul fiber transport in Pennsylvania, West Virginia, Virginia, Maryland, Ohio and New Jersey.  According to its 2010 annual report, First Communications generated $28.8m last year.

Ashley Abdo, managing director of The Gores Group, commented on its newest purchase. “The acquisition of Alpheus Communications provides Gores with a tremendous opportunity to expand upon our current telecommunications holdings, particularly our fiber and high bandwidth transport services businesses. In addition to the network assets, the deal brings additional sales and operational experience that will help us continue to expand our holdings.”

The deal will shake up top management at Alpheus, with current ceo Paul Hobby stepping aside following the acquisition.  Hobby, a partner at Alpheus seller Genesis Capital LLP, commented that he would likely be the only job loss resulting from the sale.  The Gore Group has chosen Scott Widham to take over the reigns as ceo. Currently Widham serves in the same position in another telecommunications focused company owned by Gore, CoBridge Communications.

Financial terms of the deal have not been disclosed, and Alpheus has not reported its revenue publicly in the past.  Alpheus however was put on the block in 2010, but never sold.  Reportedly, it was hoping for a purchase price of around $400m to $500m at the time.

The exponential increase in demand for broadband Internet access, specifically for 3G and 4G wireless data, has surely increased the interest in fiber assets like Alpheus’ of late. The density of Alpheus’ fiber networks and the position of its data centers near high traffic areas in Texas make it all the more attractive. Perhaps the fiber market has heated up enough so that The Gores Group was willing to pay the price tag that Alpheus sought a year ago.