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. 

CoBridge Closes on Charter Systems

Deal involves 36 Systems in Seven States

On October 22, 2010, CoBridge Communications, LLC, announced it closed on the purchase of 36 cable systems in seven states serving approximately 65,000 subscribers from Charter Communications, Inc. (Nasdaq:CHTR, “Charter”).  Financial terms of the transaction were not disclosed. 

The systems are located in the states of Alabama, Georgia, Louisiana, Missouri, Ohio and Texas and include areas such as Ozark and Troy, Ala., Benton and Little Rock, Ark., and Corpus Christi, Texas. 

CoBridge is a recently formed communications company and an affiliate of The Gores Group, a Los Angeles-based private equity firm. 

CoBridge’s ceo, Scott Widham, said the company plans to upgrade the triple-play service offerings of the 36 Charter systems and also add business-class VoIP and Ethernet-based services.  This will be accomplished by converting remaining one-way systems to two-way systems and increasing bandwidth through the use of digital terminal adapters for analog-to-digital conversions, according to Widham. 

Charter is the fourth-largest cable operator in the U.S. ranked by basic video subscribers.  Charter filed for chapter 11 bankruptcy in March of 2009 and emerged from bankruptcy in November 2009.  Its common stock began trading on Nasdaq on Sept. 14, 2010.  

JSICA Observations:  There isn’t much information available regarding CoBridge, but, its management team comes with notable telecommunications industry experience.  CoBridge’s ceo, Scott Widham, was the former co-ceo of Broadwing Communications, which was purchased by Level 3 Communications in 2007.  Before that, Widham founded Capital Cable which was acquired by Charter.  CoBridge’s cfo, Bruce Herman, was ceo and cfo at PrairieWave Communications and led M&A activities at Knology (Nasdaq:KNOL) for two years. 

According to its website, CoBridge was recently formed to provide voice, video and broadband services with the stated goal “to purchase under-managed and under-marketed cable television communities that can be improved over time.” 

CoBridge found a good target in Charter.  Charter has been burdened by large debt balances for years, sapping its cash resources necessary for capital improvements.  Although Charter reduced its debt by $8b through bankruptcy restructuring, it still has $13b in debt of which $6.5b comes due over the next four years.  Since its current operating cash flows—roughly $2.5b annually—won’t be sufficient to service its debt and make all necessary capital improvements to effectively compete, it’s no surprise that Charter continues to unload some of its properties.