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Zayo Group Buying AboveNet for $2.2 Billion PDF Print E-mail
Thursday, 22 March 2012 10:28

Telecommunications Company Zayo Group said it will acquire AboveNet Inc. for $2.2 billion dollars. The cash offer of $84 a share is 13 percent more than AboveNet’s closing price on March 16, the companies said in the statement.  AboveNet rose 12.8 percent to close at $83.74 in New York trading.

AboveNet is a leading pure-play provider of fiber infrastructure services to enterprise and carrier customers in the United States and Europe. The AboveNet and Zayo business models are closely aligned with a disciplined focus on high bandwidth fiber-based communications services. The combination will create value for customers, employees and investors with a fiber network spanning 60,000 route miles.

AboveNet's CEO said the combination of the two companies' fiber optics networks will better provide bandwidth services for customers. AboveNet serves government customers and the data-hungry financial, media and health care and Internet industries.

"Over the last five years Zayo has acquired a very impressive set of fiber infrastructure assets," said AboveNet CEO Bill LaPerch. "The combination of AboveNet's and Zayo's assets creates a dense fiber footprint throughout North America and Europe for a bandwidth hungry world."

Louisville, Colo.-based Zayo is backed by such private equity firms as MC Ventures, Battery Ventures, Charlesbank Capital Partners and Oak Investment partners.

Analysts speculate that Zayo’s offer, which implies a valuation multiple of 9.2 times forecast EBITDA (earnings before interest, tax, depreciation and amortization) for 2012, is fair, but leaves some room for a higher bid. Rival metro players have changed hands privately on multiples of anything up to 12 times predicted EBITDA.

The deal would be one of the largest U.S. acquisitions in the Internet connection services industry in history. Zayo is paying about 11 times earnings before interest, taxes, depreciation and amortization. That compares with a median of about 16 in five deals since at least 1997.

AboveNet counts brokerage houses, investment banks, Web companies and health-care providers among its customers, according to regulatory filings. The company will have 30 days to consider other offers, known as a “go shop” provision, according to the statement. Otherwise the deal is expected to be completed by mid-2012.

Zayo received equity commitments from GTCR LLC, a Chicago-based private-equity firm, and Boston-based Charlesbank Capital Partners LLC, according to the statement. Private-equity funds that were exploring offers for the company last year backed off as financing markets tightened, people familiar with the process said at the time.

As part of the transaction, GTCR will partner with Chief Executive Officer Dan Caruso and other senior executives from Zayo. Mr. Caruso and his team founded Zayo in 2006 and have built a leading bandwidth infrastructure provider.

GTCR Principal, Philip Canfield said, “We have followed the progress of Dan and his leadership team at Zayo for some time and, together, we have been looking for opportunities to do acquisitions in the bandwidth infrastructure domain. Dan and his team have a long history of success and value creation and exemplify the traits and characteristics associated with the GTCR Leaders Strategy. We look forward to working with Dan and all of Zayo’s existing shareholders to build upon their past success in the bandwidth infrastructure domain.”

“GTCR’s impressive track record of partnering with leaders to build companies through growth and acquisitions combined with their domain expertise in technology makes them a perfect partner for Zayo,” commented Dan Caruso. “We are thrilled to have a new equity partner who shares our commitment to growing our business and providing vital bandwidth infrastructure to our customers.”

White Plains, N.Y.-based AboveNet will have 30 days to solicit other offers. "ABVT can shop the transaction around for a month, but we see other bidders as unlikely," said Oppenheimer analyst Tim Horan in a research report. "Zayo is getting a good deal and is striking before it has to enter into a bidding war with Level 3 Communications or CenturyLink."