Zayo is acquiring Spread Networks for $127 million in cash, a purchase that will give the service provider access to the desirable low-latency fiber route between New York and Chicago.
After meeting customary closing conditions, Zayo expects to complete the Spread purchase in the first calendar quarter of 2018 and to fund the acquisition with cash on hand and debt.
For the quarter that ends Dec. 31, 2017, Spread Networks is expected to generate $22.8 million in annualized revenue and $7.5 million in annualized EBITDA. Zayo expects to reach $10.5 million in annualized EBITDA from the Spread acquisition by the Sept. 30, 2018, quarter through cost synergies and organic growth.
What’s significant about Spread Networks’ 825-mile, high fiber count long-haul route is that it is a desirable throughway for financial services customers who have trading operations in New York and Chicago.
The service provider said the acquisition will provide Zayo’s customers with the lowest latency and most direct fiber route between the two cities along with additional physical path diversity.
“This asset is an outstanding complement to our existing network, providing customers with low-latency options to and from the country’s leading centers of finance and commerce,” said Jack Waters, CTO and president of fiber solutions at Zayo, in a release.
But Spread Networks’ route is also a key puzzle piece of Zayo’s broader network assets. By combining the Spread assets with Zayo’s fiber routes from Seattle to Chicago and San Francisco to Chicago, many other verticals including content, media and cloud providers benefit from the low-latency coast-to-coast network.
Additionally, traffic to and from Asia, which connects through cable landing stations in the Pacific Northwest, are also express connected via the combination of Zayo existing fiber routes and the Spread route.
Being a high fiber count route currently serving over 60 customers, Spread’s network has plenty of capacity to serve other customers that need access to the New York-to-Chicago route. Today, less than 25% of the 432 fibers available on the route area are used, and the acquisition gives Zayo overpull rights and additional conduit. Specifically, the route connects 755 Secaucus Rd. in Secaucus, N.J., and 1400 Federal Blvd. in Carteret, N.J., to 350 Cermak Rd. in Chicago, with additional connectivity enabled by Zayo’s existing network. Zayo said it will use the acquired assets to provide a low-latency wavelength route from Seattle to New York.
Barclay’s said in a research note that the acquisition reflects the ongoing trend of rolling up the remaining regional fiber operators.
“Overall, we view the deal as illustrative of the continued opportunities to consolidate smaller fiber providers in the U.S.,” Barclays said in a research note. ‘While our recent meetings with management suggest that larger domestic transactions may be less prevalent (for further details, please see “Zayo: It All Starts with Improving Growth” dated 11.16.17), this morning’s announcement seems to support expectations that select assets are available to bolster the company’s domestic fiber and colocation asset base.”