Zayo bid for AboveNet could trigger auction

Zayo bid for AboveNet could trigger auction

Zayo’s proposed $2.2 billion offer for AboveNet, the largest metro fibre provider in the US by revenues, could trigger a hotly-contested auction over the next 30 days, analysts speculated today.

Zayo, the most acquisitive metro fibre player in the sector with more than 16 acquisitions already under its belt, said yesterday that it would pay $84 a share for AboveNet, a 13% premium to the price at which the company’s shares were trading last Friday.

However, Capacity has established that Zayo was not linked to a separate offer for the company last year, raising the prospect of a rival bidder entering the fray.

Under the terms of the surprise deal – the largest merger yet in a sector that has seen feverish consolidation over the past two years – AboveNet’s advisers have a 30-day “go-shop” period in which to solicit interest from rival bidders. It is understood that last May’s offer for AboveNet came from a private equity player with substantial assets in the metro space. Sources familiar with the situation confirmed to Capacity that the approach, which is thought to have been pitched at around $75 a share, collapsed because of the parlous state of the debt financing markets at the time.

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.

While a private equity firm may struggle to justify a higher multiple, speculation has been mounting for some time that a cable company such as Comcast or Cablevision might be looking to bolster its enterprise footprint through a metro acquisition. CenturyLink and TW Telecom might also consider AboveNet an attractive fit.

Under certain circumstances, the “go-shop” provision can be extended to May 2 2012. Zayo, meanwhile, has negotiated the right to match any higher offer for the company.

Zayo is bringing in a completely new private equity backer to help finance the deal in a move that will lay to rest any lingering hopes that Dan Caruso, the company’s president and chief executive, might seek to simplify a complex ownership structure through an initial public offering on the US stock market. GTCR, a Chicago-based firm is one of a handful of investment firms that has been seeking a way into the fast-growing fibre infrastructure market over recent years. Charlesbank Capital Partners, an existing backer in Zayo, is also providing existing funding.

It is not clear whether William LaPerch, AboveNet’s chief executive would seek a role in the enlarged business. Speaking to Capacity last month, LaPerch said that he could not envisage a situation where he was not involved in the telecoms sector.

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