This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Zayo Primed for Profitable IPO

NEW YORK (The Deal) -- Since 2007, Zayo Group and its private equity backers have rolled up close to 30 
fiber networking companies, many of them orphans from the telecom bust of 2002.

The Englewood, Colo., outfit, run by chairman and CEO Dan Caruso, has also accumulated an impressive group of PE backers, including GTCR, Battery Ventures, Centennial Ventures, Charlesbank Capital Partners, Columbia Capital, M/C Venture Partners, Morgan Stanley Alternative Investment Partners and Oak Investment Partners.

With recent gains by the stocks of peers such as Level 3 Communications (LVLT) and TW Telecom (TWTC), bankers and analysts have suggested that 2014 would be an auspicious time for Zayo to go public and perhaps raise funds to launch European deals.

"The multiples in the fiber space have certainly moved up nicely," said Donna Jaegers of D.A. Davidson.

"They are looking at that," she said of the valuations. "Plus, if you are a PE backer that's always the easiest way to get liquidity."

Fiber deals have been valued at 9 to 11 times Ebitda, and Jaegers suggested that Zayo would look toward the higher end of that range. She said she expects the company to file an S-1 in early spring.

Cowen and Co. valued TW Telecom at 9.8 times projected 2014 Ebitda, and Level 3 at 8.3 times Ebitda, in January. Zayo would arguably trade above those numbers.

About a third of the company's sales come from dark fiber, or strands of fiber that are not lit by optical communications equipment. Large corporate or telecom clients provide the equipment to light the fiber themselves.

The average contract length is 15 years, and the terms often include price increases to cover the cost of inflation.

Zayo has more than $620 million of 
annualized adjusted Ebitda. At a multiple of 10 to 11 times Ebitda, the company could support an enterprise value of $6.2 billion to $6.8 billion, including about $2.8 billion in long-term debt.

That would leave more than $3 billion in equity value. GTCR invested in Zayo about two years ago when Zayo launched a 
$2.2 billion acquisition of AboveNet.

Zayo offered no comment.

While Zayo has rolled up much of the U.S., Jaegers said an initial public offering could help the company pursue European groups such as the fiber unit of Colt Group, in which Fidelity Investments owns 70% of the stock; euNetworks Group; or Hibernia Atlantic Cable System.

The blueprint for Zayo came from ICG Communications, a distressed telecom that Columbia Capital and M/C Partners acquired in 2004 for $8.7 million. The backers put Caruso in charge. ICG divested some assets and in 2006 sold outright to Level 3 Communications for $170 million. Zayo's website said that the backers made 25 times their investment.

Zayo's investors would not earn that level of return on an IPO but would have a profitable exit from their fiber roll up.

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,915.07 -70.54 -0.42%
S&P 500 1,964.68 -8.15 -0.41%
NASDAQ 4,396.2040 -22.83 -0.52%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto
Advertising Partners

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs