Entries in Zayo (9)

Wednesday
Jan112012

zColo Pays $15.9m for Las Vegas Data Center

Zayo Group Expands West Coast Presence

zColo, a Zayo Group Company, announced on January 3rd that is has acquired all of the net assets of MarquisNet, a Las Vegas-based co-location provider. According to documents filed with the SEC, zColo will pay approximately $15.9m in the deal, subject to post-closing adjustments. The purchase was funded through Zayo’s revolving line of credit, which prior to the deal was $63.3m. MarquisNet represents Zayo’s 18th acquisition since its inception in 2006.

The primary asset in zColo’s purchase is MarquisNet’s data center, located at 7185 Pollock Drive in Las Vegas. The facility features 28k square feet of co-location space, Tier 1 Internet access, N+1 routing equipment and HVAC redundant design.  Including this newly acquired facility, zColo owns and operates 12 data centers in 11 markets including Los Angeles, New York and New Jersey. Zayo Group, zColo’s parent company, has indicated that it will extend its fiber network to 7185 Pollock Drive, joining AT&T, XO, Cox Communications and Sprint among the nine carriers that have a fiber connection to the facility. 

The acquisition of MarquisNet and the forthcoming fiber build into the Las Vegas facility furthers Zayo’s efforts to expand its presence out West. In December, Zayo closed on its $393m purchase of 360networks, which provided it with access to a number of new markets on the West Coast including Albuquerque, San Francisco and Tucson. It also recently completed a fiber build into the Green House Data Center in Wyoming, providing the facility with metro and long haul connectivity, and it is in the middle of a fiber network build in San Diego.

zColo commented in its press release announcing the MarquisNet purchase that among its enterprise clients there has been a surge in demand for data centers as a location for disaster recovery on the West Coast.  Las Vegas in particular is a popular destination for data center owners to build and operate thanks to its cheap land, and relative lack of natural disasters. Data center specialist Switch operates multiple properties in Las Vegas including its flagship 400k square foot SuperNap facility and it will soon break ground on a $400m project to add 600k square feet of data center space in Las Vegas.  Both Zayo and Switch attribute the increase in data center demand at least in part to the increase in cloud computing.

At a price of $15.9m, zColo paid approximately $568 per operating square foot for MarquisNet, a multiple below the average price of $751 per square foot observed in recent transactions. We have no past financial information on MarquisNet, however recent data center deals have been struck at an average of 5.7x revenue which would indicate the facility could add around $2m-$3m to zColo’s top line. Based on its 3Q11 financials annualized, zColo currently generates approximately $39m in revenue annually.  

Monday
Oct312011

Zayo Group Agrees to Pay $345m for 360networks

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.

Sunday
Oct312010

Zayo Closes on American Fiber Systems Deal

Zayo Adds Another 1,000 Route Miles to its Fiber Network

Louisville, Colo.-based Zayo Group, a provider of telecom and Internet infrastructure services, announced on October 1, 2010 that it has closed its previously announced purchase of American Fiber Systems (AFS) (The Deal Advisor, 7/10, p.18).  The acquisition adds approximately 1,000 route miles of fiber, more than 600 incremental buildings and six new markets to Zayo’s network, as well as expansion in three markets where Zayo already operates. 

“Zayo Group’s acquisition strategy remains targeted on entities that provide high-margin bandwidth infrastructure services,” said Ken desGarennes, cfo of Zayo Group. “American Fiber Systems was focused on serving a customer base similar to that of Zayo and is expected to quickly add $15m of post-synergized annual EBITDA to Zayo Group.” 

AFS provides both lit and dark fiber bandwidth infrastructure services in Atlanta, Boise, Cleveland, Kansas City, Las Vegas, Minneapolis, Nashville, Reno and Salt Lake City. AFS’ fiber networks support a predominantly “on-net” revenue base and its product set is concentrated in fiber and transport services, consistent with the existing Zayo bandwidth infrastructure product strategy. 

“The acquisition of AFS provides Zayo with an ideal combination of network assets and revenue base,” said Dan Caruso, ceo of Zayo Group. “AFS brings unique fiber assets to both new and existing markets, and its product set and customer base fit very cleanly into Zayo’s focus on infrastructure services.” 

With the addition of AFS and the recent acquisition of AGL Networks, Zayo now has over 22,000 fiber route miles and operates in 150 markets including dedicated fiber solutions in 60 metro markets. 

JSICA Observations:  Details of the transaction weren’t disclosed, but if we consider the multiples Zayo paid in its buy of AGL Networks last month (The Deal Advisor, 9/10, p.18), the deal may have come in in the $110-$120m price range (4.2x revenue of $28m = $120m; 7.5x pro forma EBITDA of $15m = $112.5m).  That would explain why the company vigorously denied rumors last summer that it was a $190m deal!

As a side note—we noted back in July when this deal was announced that Zayo ceo Dan Caruso might still be shopping for network assets.  As it turns out, Zayo hasn’t announced any additional acquisitions, but three of the four companies we pointed to as being “on the block” have since sold:  KDL is going to Windstream as part of the Q-Comm deal (The Deal Advisor, 9/10, p.1), Fibertech Networks is selling to Court Square Capital Partners and NTELOS stepped up for Fibernet (The Deal Advisor, 7/10, p.1).  With this month’s EarthLink/ ITC^Deltacom deal (p.1) there’s no question that fiber network assets are hot!

Thursday
Sep302010

NETWORK DEALS: AGL Networks 

Zayo Group Closes on 850 Route Mile Network

Louisville, Colo.-based Zayo Group, a provider of bandwidth infrastructure and network-neutral colocation services, announced on July 1, 2010 that is has closed its previously announced transaction to purchase AGL Networks (AGLN), adding approximately 850 route miles of owned fiber footprint and 270 buildings to Zayo's Network (The Deal Advisor, 4/10, p.12). provides dark fiber bandwidth infrastructure services in Atlanta, Phoenix and Charlotte. 

"Zayo Group continues to focus on infrastructure-based acquisitions that complement or bolster our existing network assets," said Ken desGarennes, cfo of Zayo Group. "AGL Networks is a pure play dark fiber infrastructure provider and is expected to add $9-10m of post synergized EBITDA and $160m of total contract value to Zayo Group." 

"We aim to build on the success that AGLN has achieved and, as such, Zayo will look to further bolster our dark fiber product and related services offerings," said Dan Caruso, president and ceo of Zayo Group. "Dark fiber services act as a core building block upon which most telecommunications services, including fiber to the tower, web 2.0 applications, and other high bandwidth applications are built." 

Privately-owned Zayo Group is a provider of bandwidth infrastructure and network neutral colocation services.  Zayo provides its bandwidth infrastructure services over its regional, metro fiber and fiber-to-the-tower networks that span 141 markets and 23 states.

JSICA Observations:  Back when the deal was announced, the $71.5m purchase price implied a value of nearly $90k for each of 795 route miles.  Apparently another 55 miles have since been constructed, and assuming the price came in as expected, the value per route mile falls to just over $84k.  Zayo said that recurring annualized revenue is now $17m, and that $9-$10m in EBITDA will be generated after synergies.  According to our Calculator, that implies deal multiples of 4.2x revenue and 7.5x pro forma EBITDA. 

Zayo, which continues to acquire fiber assets and which may be prepping for an IPO, believes the acquired assets would cost more than $100m to reconstruct—implying it feels like it got a 30% discount, despite the relatively strong multiples. 

In other network related news last month, Rochester, NY-based FiberTech Networks said August 26, 2010 that it has entered into an agreement to be acquired by Court Square Capital Partners.  Original investors Nautic Partners and Ridgemont Equity Partners are selling for an undisclosed sum.  The deal is expected to close before year-end. 

Separately, Ridgemont Equity Partners announced August 31, 2010 that it will make a majority investment in Kansas City, Missouri.-based Unite Private Networks for an undisclosed sum.  That transaction is also expected to close in the fourth quarter.

Saturday
Jul312010

Zayo to Acquire American Fiber Systems

Deal Puts Zayo into Six New Metros

Louisville, Colo.-based Zayo Group, LLC, a provider of bandwidth infrastructure and network-neutral collocation services, announced June 30, 2010 that it has reached a definitive agreement to acquire Rochester, N.Y.-based American Fiber Systems Holding Corporation (AFS), a privately held provider of dark fiber and lit bandwidth services to carrier and large enterprise customers.   Terms of the deal weren’t made public, but a writer for the Rochester Business Journal reported that a “knowledgeable source” had indicated that the deal price came in around $185-$190m.   Zayo quickly issued a clarification that the deal terms were not disclosed and that the “consideration referenced by various media outlets was materially inaccurate and overstated.”  The transaction, which is subject to regulatory approvals and customary closing conditions, is expected to close in 90-120 days. 

AFS was founded in August 1999 by former Frontier Communications president, David Rusin, who was orginally brought into Frontier (back then Rochester Telephone Company) to head the country’s first CLEC.  Under Rusin and with backing from Sierra Ventures, AFS, had its first customer by November 2000.  Over the next decade, AFS grew to own fiber optic networks consisting of 76,000 fiber miles, including 1,200+ route miles of metropolitan fiber networks across nine tier 1 and tier 2 markets, and regionally throughout Georgia. 

For Zayo, the deal represents the opportunity to enter six new metropolitan markets and enhances its depth and footprint in three more.  New markets include Boise, Kansas City, Las Vegas, Nashville, Reno and Salt Lake City, with more than 800 fiber route miles.   And in Cleveland, Minneapolis and Atlanta (thanks to the pending acquisition of AGL Networks, (The Deal Advisor, 4/10, p.12), Zayo adds approximately 400 route miles. 

Much like the sales and marketing approach of the Zayo Bandwidth business unit, the AFS customer base is weighted towards the carrier, wireless and other wholesale segments.  Additionally, the two companies’ product strategies are aligned, concentrating on fiber and transport services.  AFS' network supports a predominantly "on-net" revenue base that provides significant operating leverage on incremental growth. 

JSICA Observations: As we said back in April, the AGL Networks deal was a bit outside of Zayo’s sweet spot, but we believed it might motivate Zayo co-founder Dan Caruso to scoop up a few more networks to bridge the gap.  With Zayo’s 15th acquisition since its inception in 2007, the AFS deal is a step in that direction – with a considerable push into the western “Frontier” (pun intended). 

AFS’ strongest markets – Atlanta, Boise, and Las Vegas – represent nearly 75% of its revenue base.  In a matter of months, Zayo leveraged off the AGL Networks deal by augmenting the Atlanta market and with six new metro markets in the fold, Zayo’s potential targets have multiplied exponentially. 

Should Caruso be seeking still more targets, the rumor mill has at least four fiber service providers on the auction block, including Evansville Indiana-based KDL, which has a 30,000 mile fiber network and offers services in 26 states; Rochester, N.Y.-based Fibertech, which serves 26 cities in the Northeast, Mid-Atlantic, and Midwest; Houston, Texas-based Alpheus Communications, which has 5,700 miles of Texas fiber; and Charleston W.V.- based FiberNet, which just announced a deal to be acquired by NTELOS (see pg. 1).   Whispers indicate that the companies are hoping to get deals done at approximately 10x EBITDA.