Zayo: CLEC woes mean buyer’s market for fiber

Zayo Group, which has made a string of acquisitions in recent months, said it has thus far benefitted from a buyer’s market for fiber assets sustained in part because large carriers that might normally be bidding for those same assets have been too distracted with internal problems. The stumbling of some of those competitive local exchange carriers (CLECs) has also helped keep valuations low for fiber networks, as investors have grown wary of the entire sector due to the missteps of a few. But these conditions could all change very soon, according to Dan Caruso, Zayo’s chief executive officer.

“The larger players, whose performance has been spotty over the last year or two, put a chill on the industry, which caused many strategic buyers to wait on the sidelines,” Caruso said Tuesday in a panel discussion at the CoBank conference in Colorado. “That opened a window of opportunity for us…We’ve benefitted greatly from the heightened anxiety of the economic climate.”

Privately held Zayo has acquired eight companies with fiber networks since its public launch last year, focusing mainly on tier-three and -four rural markets.

“Some of the big guys are still struggling – not all of them,” Caruso said. “Level 3 went through some major struggles about 6 months ago; that put a damper on everyone’s valuation. XO, Global Crossing and Cogent have their own separate issues. Paetec had a big scare. Those events extend the window for us. The big RBOCs are really focused on wireless opportunities, so they’re not really looking [at fiber assets]. So if there are opportunities to buy companies, there’s a little less competition than there will be a few years from now.”

Companies buying assets for strategic reasons rather than mere financial ones (such as private equity firms, for example) are generally seen as being able to offer higher, more competitive acquisition bids.