Rob Powell
November 30th, 2016

After eight plus years of buying US fiber assets, Zayo has yet to run out of targets it seems. The Boulder-based fiber operator has struck again, announcing the acquisition of Electric Lightwave in a $1.42B cash deal announced this morning.

The purchase will add some 3,100 on-net buildings connected by 4,000 miles of metro fiber and linked up regionally via 8,100 route miles of long haul fiber. Electric Lightwave had reassumed the mantle of fiber operator over the last few years, becoming the focus of Integra several years before taking over the brand name as well. About 40% of the acquired revenues fits directly with Zayo's wholesale and enterprise fiber connectivity. Zayo's metro depth in the major metro areas in the Pacific Northwest and the Rockies will be significantly enhanced, and they also gain that alternative route under the sea along the California coast that Electric Lightwave acquired in the Optic Access deal to further differentiate their California footprint.

Much of the rest is more of the CLEC variety that still operates under the name Integra, and which is more like the similar pile of revenue Zayo acquired in the Allstream deal up in Canada. Zayo has been said to be planning to divest the infrastructure-light part of the Allstream assets, but perhaps the integration of the Integra business will change that equation a bit. They may still sell it, but perhaps first they will do the integration and tie a nice pretty bow on it. Or, they could see it as the next consolidation platform, a nice pile of CLEC-style revenues backed up by the continent-wide dense fiber network Zayo now has could be an interesting way to build scale now.

I've expected Electric Lightwave/Integra to be a consolidation target for a long time, so none of this comes as much of a surprise. I had thought that Windstream might be the one to finally pounce in order to gain that west coast presence, but it appears that Zayo stepped up with the biggest cash offer.

The purchase price of $1.42B brings in EBITDA of $180M or so, representing a multiple of below 8, reflecting the lower margins overall. Zayo expects to achieve some $40M in annual cost synergies, and gains some $400Mm in NOLs as well. The deal wil close in the first quarter of 2017.