Steve Soraporu of Waller Capital Partners stated that fiber infrastructure gives more comfort to financial investors when they see these fiber assets attached to companies’ portfolios.
Rob West of CoBank, a bank in the telecom industry since the 80s, sees a balanced view, loving the growth, but notes that not all companies are equal and cognisant of the fact that “hockey stick” growth doesn’t always turn into revenue, noting that Dan’s company has tremendous access to debt financing, but many others don’t have that type of access.
Dan stated traditionally private companies are valued less than public, often because it’s hard to value public companies. Private markets, funded by private equity firms who do the necessary due diligence, understand what a company should be worth, beyond EBITDA valuations.
Rob continued, that you have to look beyond current EBITDA, look at the competition, debt values on towers etc. He noted that particularly on CLECs and cable companies, these companies are transitioning their businesses and there are shareholder risks. CoBank is confident on the data side, and where there is not a lot of competition, there is opportunity.
David Parker of RBC Capital Markets noted that people are becoming more familiar with stories, so greater opportunity for investors.
Rob noted that in his world, bank deals are more attractive to bond deals, as if you have growth you need more flexibility. Steve agreed that most people in the room here at COMPTEL, size is key in a high-yield market.
David said in the bank market, it’s simply a different pool of capital.
Moderator Scott Widham of Alpheus Communications asked Dan about price compression. Dan replied with, “are you going to pay for your cell phone usage and expect to cover all the cell tower growth? If so, it will be a price equal to your mortgage.” So technology goes up and price goes down. We publish price trends at Zayo, like average price of OC3. Price per megabit will go down but that’s a good thing.
Steve differentiates between dark and lit fiber. As dark is considered unique and rare, it’s priced differently than lit. Where there are links, like Zayo’s acquisition of 360, that are unique routes and therefore a different price. Dan agreed, it’s not as simple as price per megabit.
Financial buyers have an appetite to get in the space and looking for repeatable platforms and locations. Steve said part of the reason Zayo had won 360 was there existing synergies. Taking Zayo’s existing customer list and putting it on top of 360’s network, there are both cost and revenue synergies.
David commented that beyond synergies in a M&A, there are relationships you develop, like in the 360 and Zayo deal.
Dan also cited in his acquisitions, such as the recent, AboveNet deal the company is transparent in their financial analysis throughout the M&A process.