Cogent as an acquisition target? ‘We struggle to see the fit with another operator’

Cogent offers services across large portions of the United States.

Although mergers and acquisitions in the telecom space have been heating up significantly in recent months, at least one analyst firm believes that Cogent may well stay above the fray.

“This isn’t to say that Cogent’s business model isn’t attractive—we think it is quite attractive—but rather we struggle to see the fit with another operator because it is so unique and specialized,” noted the analysts at MoffettNathanson in a recent report on Cogent’s position in the market.

MoffettNathanson’s argument essentially revolves around Cogent’s approach to the telco sector, and how it is different from most other players’ business models. Specifically, the firm said that Cogent takes a “dumb pipe” approach to telecommunications services; the firm sells only access and eschews sales of premium business services. As a result, companies looking for an acquisition target may pass over Cogent since they may not be able to sell premium business services into Cogent’s existing customer base.


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Thus, due to Cogent’s approach to the market and how it differs from other potential M&A players, the company likely wouldn’t make a sound acquisition target for the likes of Level 3 or Zayo, MoffettNathanson argued.

The firm added that it expects private equity companies or international players like Telia to be the only ones interested in a purchase of Cogent.

Indeed, Cogent’s management has said that the company can remain above the M&A action that has embroiled the industry. CEO Dave Schaeffer told FierceTelecom in November that recent major deals like CenturyLink’s tie-up with Level 3 and Windstream’s deal for EarthLink won’t have a major effect on the telecom industry as a whole. “In terms of changing the industry, I just don’t think these are material transactions,” Schaeffer said. “Internet is so deflationary to the whole infrastructure industry that a lot of these companies are struggling.”

Cogent’s fiber network connects 2,373 buildings across the United States. The company’s on-net revenue was $83.5 million for the fourth quarter, up 2% sequentially and up 9.1% from the fourth quarter of last year. Cogent’s on-net revenue was $323.6 million for the year, which was an increase of 9.8%.

The service provider ended the quarter with over 52,800 on-net customer connections on its network.

Overall, MoffettNathanson said it sees Cogent’s net-centric growth picking up this year, “which will drive an overall improvement in growth” for the company.

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