financing fiber networks april 13th, 2015€¦ · 2 confidential & proprietary media venture...
TRANSCRIPT
Financing Fiber Networks April 13th, 2015
San Francisco 244 Jackson, Suite 400
San Francisco, CA 94111
Boulder 2033 11th Street, Suite 6
Boulder, CO 80302
Kansas City 435 Nichols Road, Suite 200
Kansas City, MO 64112
Boston 990 Washington, Suite 200
Dedham, MA 02026
New York 261 Madison Avenue, Suite 900
New York, NY 10016
2 Confidential & Proprietary
Media Venture Partners is a Telecom, Media & Technology Focused Investment Bank
MVP offers valuation, merger & acquisition and capital raising advisory services to the following sectors
Telecom service providers: wireless, fiber and wireline
Shared wireless infrastructure: towers, DAS and backhaul
Datacenters, cloud-based services and machine-to-machine
Wireless spectrum
Broadcast radio and television
Renewable energy
Founded in 1987, MVP has a 28-year history of maximizing value for clients
MVP has advised on over $16 billion of transactions
MVP’s sector specific focus offers our clients both transaction and industry related expertise
MVP understands both the micro and macro level valuation and deal drivers within our sectors
3 Confidential & Proprietary
MERGERS & ACQUISITIONS
Broadband / Fiber Shared Wireless Infrastructure
& Wireless
Datacenter & Managed Hosting
MVP Telecom Group: Services Offered
CAPITAL RAISES
VALUATION & APPRAISALS
STRATEGIC PARTNERSHIPS
5 Confidential & Proprietary
Strong Data Growth Continues to Drive Fiber Demand
Fiber demand is being driven from multiple sectors, including corporate (retail and enterprises), mobile backhaul, consumer and wholesale
Cisco’s 2015 VNI report anticipates mobile video traffic will increase 13-fold between 2014 and 2019, accounting for 72% of mobile data traffic
Wireless carrier fiber-to-the-tower (“FTTT”) deployments are expected to continue in 2015 and beyond; an estimated 75% of AT&T and Verizon’s cell sites are connected by fiber
Consumers interest in “on-demand” content fueling massive increases in data usage
In the corporate segment, the market for voice and data services is estimated to be $100B in revenue per year
Projected 20% CAGR through 2018 for all North American business IP traffic and 50% CAGR for mobile traffic
The opportunity for further penetration in the fiber market remains significant
Greater than 60% of buildings in the U.S. with 20 or more employees lack fiber access facilities
Shift of focus to the “last mile” as companies seek to connect to business clients directly
Pricing pressure is building as competitors continue to enter new markets and expand product offerings
Cable
Traditional CLECs
LECs
Pure-play fiber companies
Datacenter operators
Growth of North American Metro Traffic
Sources: Reuters, D.A. Davidson Equity Research, FierceTelecom, Zayo Group Holdings, Atlantic-ACM
6 Confidential & Proprietary
Capital Markets Continue to be Active in Funding Fiber Development
Fiber remains attractive to both private equity and public market investors
Viewed as an attractive entry-point into playing growing IP traffic and bandwidth
High-margin, contract-based revenue streams combined with cheap available debt capital
High capex projects create a barrier to entry
Private equity has already funded a number of fiber operators and are seeking additional opportunities
Zayo Group – Large consortium led by MC Partners, Charlesbank & Battery Ventures
Lightower – Berkshire & Abry; Lightower originally funded by MC Partners & Pamlico
Oxford Networks – Novacap, who also owns a fiber operator in Canada (Fibre Noir)
FirstLight – Riverside Partners portfolio company that has been aggregating independent operators in the Northeast
While there are in excess of 30 distinct funds that already have investments in the fiber sector, there is still a robust list of private equity groups who have not yet invested in the space but are trying to find the right deal
Favored sector of debt investors
Capital markets have been particularly robust for fiber operators, lending up to 6x EBITDA
Public markets continue to support the sector, with valuations at 85% of 52-week highs and an average of 9x 2015E EBITDA
Zayo went public on October 20th, 2014
Zayo currently trading at 12x LQA EBITDA and at 11.0x forward EBITDA[1]
[1] Zayo has a June 30th year end.
7 Confidential & Proprietary
Deep & Diverse Pool of Telecom-Focused Private Equity Investors With Fiber Interest
Fiber Company Private Equity Investor(s)
8 Confidential & Proprietary
Deep & Diverse Pool of Telecom-Focused Private Equity Investors With Fiber Interest
Fiber Company Private Equity Investor(s)
9 Confidential & Proprietary
Fiber M&A Activity is Being Driven by Synergies, Scale and Cheap Capital
Strategic buyers are looking to exploit synergies via geographic expansion and increasing in-market density
Recent transactions have often included “post-synergy” multiples several turns lower than unadjusted valuation metrics, indicating acquirers are able to realize significant operating synergies
Zayo has closed over $3.7 billion of aggregate purchases across 30 transactions (includes over 50,000 route miles) at an average EBITDA multiple of 9.4x (pre-synergy) and 6.8x (post-synergy)[1]
Zayo continues to make acquisitions post IPO (recently acquired the carrier and enterprise segment of IdeaTek Network, a Kansas based fiber operator with 1,800 route miles and metro footprint in Wichita)
Increasing scale allows for operators to improve their competitive positioning
Carriers and larger enterprises see benefits working with a single provider who can meet all needs
Geographic reach and breadth of services (including hosting/colocation and managed services)
Scale allows for operators to obtain cheaper capital
Network density provides for a key competitive advantage
Cheap debt capital is also fueling M&A activity – markets remain fairly hot
Fiber operators are often able to garner up to 6x leverage
RLECs are seeking to diversify into growth areas given access line trends by deploying capital in higher return opportunities
Declining residential and regulatory revenue streams
Need to deploy fiber to remain competitive
[1] Zayo SEC filings
10 Confidential & Proprietary
Lots of Deal Activity, But Each Deal Has Unique Attributes / Value Drivers
Two recent transactions demonstrate how valuations can vary for fiber operators: Level 3 acquiring tw telecom and Consolidated Communications acquiring Enventis Corp.
LVLT / TWTC: Level 3 estimates that <10% of tw telecom’s footprint (76 markets) overlapped existing network while Level 3’s extensive long-haul network compliments tw telecom’s metro assets
CNSL / ENVE: Consolidated acquired fiber assets primarily in MN as well as ND, SD, IA and WI
The transactions each had unique valuation considerations
tw telecom valued at nearly 13x EBITDA (pre-synergy)
Rich multiple attributable to substantial metro fiber-assets, existing enterprise business and estimated $2 billion of estimated synergies (NPV)
Conversely, Enventis received a more modest valuation at 7.3x EBITDA (pre-synergy)
Lower multiple attributable to Enventis’ low-margin Cisco equipment sale business (~30% of total revenues), limited geographic scope (primarily upper Midwest) as well as substantial legacy residential and business telecom service
LVLT/TWTC CNSL/ENVE
Transaction Value $7.3B $350M
EBITDA Multiple 12.8x (pre-synergy) / 9.5x (post-synergy) 7.3x (pre-synergy) / 5.6x (post-synergy)
Estimated Synergies $200M (plus $40M CapEx in Year 1) $14M (10% of OpEx)
Route Miles Acquired 77,000+ 4,200
Pro Forma Combined Financials
$7.9B Revenue / $2.4B Adj. EBITDA
$785M Revenue / $346M Adj. EBITDA
11 Confidential & Proprietary
Valuation: Public Comparable Companies
Public comparable companies are trading at ~13x LTM EBITDA and ~9x 2015E EBITDA
Higher multiples received for revenue growth, geographic diversity and substantial capacity within existing networks
($ in millions, except for share price)
% of '13-'15EStock Price 52-Week Market Revenue EBITDA TEV / Revenue TEV / EBITDA
Company Name 4/10/2015 High Cap Growth Growth 2013A LTM 2015E 2016E 2013A LTM 2015E 2016E
Cogent Communications $35.07 86.6% $1,645.0 8.6% 10.1% 5.4x 4.9x 4.6x 4.1x 15.6x 16.7x 12.9x 11.1xConsolidated Communications 21.01 72.9% 846.5 14.1% 8.6% 3.4x 3.2x 2.6x 2.6x 7.6x 8.2x 6.4x 6.2xLumos Networks 15.95 85.9% 354.0 (1.2%) (2.7%) 3.3x 3.4x 3.4x 3.2x 7.1x 7.1x 7.5x 6.8xLevel 3 Communications 53.63 95.9% 12,729.9 15.3% 30.0% 3.2x 3.0x 2.4x 2.3x 13.3x 10.5x 7.9x 7.1x
Zayo Group Holdings, Inc. [1] 27.46 85.3% 6,562.9 22.1% 38.2% 9.4x 7.7x 6.3x 5.9x 21.0x 21.5x 11.0x 10.0x
Average 85.3% 11.8% 16.8% 5.0x 4.5x 3.9x 3.6x 12.9x 12.8x 9.1x 8.2xMedian 14.1% 10.1% 3.4x 3.4x 3.4x 3.2x 13.3x 10.5x 7.9x 7.1xSource: Company Filings, Capital IQ
[1] 2014 for Zayo is from July 2013 - June 2014, while LTM represents January 2013 - December 2014.
12 Confidential & Proprietary
Key Attributes that Attract Investment for Fiber Companies
High quality network serving attractive markets with potential for growth
Focused business plan
Reputable customer base
Long-term contracts
Low churn
Simple legal structure, capital structure and governance
Manageable shareholder base
Growing financial results with positive EBITDA
Experienced management team