Cogent's Schaeffer: We have not found any acquisition opportunities that make sense
Dave Schaeffer, CEO and chairman of Cogent Communications (Nasdaq: CCOI), isn't afraid of scaling his business through a mix of acquisitions, but right now he's not seeing deals that would add value to his company's bottom line.
Speaking at this week's 40th Annual J.P. Morgan Global Technology, Media and Telecom Conference, Schaeffer said he agrees that consolidation of the competitive and incumbent service provider markets will continue.
Operating in what he admits is a "sick" sector, Schaeffer said he believes there are a few factors driving industry consolidation.
Some service providers go out and purchase other companies try to move up the value chain and offer more complex products as a way to augment revenue, while others see more rapid management changes, strategy, and policy. Finally, the other group of service providers believe that consolidation is a way to help them overcome shortcomings in their business.
Regardless of the reasons, Schaeffer said while "there will be more consolidation, I don't think it results in any change to the fundamental dynamics to the industry."
Having a good amount of cash on hand every quarter since 2006, the service provider has taken a number of organic and inorganic measures. From an organic growth perspective it embarked on four key initiatives: bought back stock, purchased 54 percent of its debt, purchased more distressed assets, and implemented a regular 10 cents a quarter dividend for its shareholders.
However, from an inorganic growth perspective, Schaeffer said that has yet to found any that were worth pursuing.
"On the inorganic side, we have evaluated dozens if not hundreds of opportunities and we have found none that are accretive on a free cash flow per share basis," Schaeffer said.
With an equity capitalization of about $800 million, and about $240 million cash on its balance sheet, Schaeffer went onto say that Cogent could raise the additional funds to make an acquisition.
"We could raise additional capital for an opportunity that makes sense," he said. "We have looked at many but none of them have made any sense for us."
The service provider is taking a similar conservative approach to spending capital within its own business. Key investments in its business include the continual hiring of new sales associates and targeting new areas to build out its fiber footprint.
"We do not believe unless the market goes through a significant realignment of value we're going to be a buyer of inorganic assets to grow the business and organically we don't see a change in our trajectory," Schaeffer said.
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