Zayo’s sales and marketing reorg could raise organic growth rate to 8% in 2018: Barclays

Zayo's new sales and marketing division could boost the company's organic growth rate.

In a meeting with Zayo management following the release of the company’s quarterly results, the analysts at Barclays found that the company could potentially hit an organic growth rate of up to 8% if the company’s newly restructured sales and marketing division is successful in drumming up new business.

“Following the recent the ramp of its quota bearing headcount (from mid 130s to 260+) and the creation of a business development organization within that group, management has seen a marked improvement in identifying and signing up ‘white space’ deals,” the analysts at Barclays wrote in a research note to investors today. “Based on its current pipeline of activity, management indicated that it would be surprised if it didn't pass the $8.5 million bookings threshold at some point next calendar year. Assuming a return to more normalized churn levels within the next year, sustaining bookings at these levels would equate to an organic growth rate of ~7-8%.”

And overall, the Barclays analysts offered a relatively positive outlook on Zayo’s prospects: “The ability to deliver its target of improved organic growth should create a ripple effect across Zayo’s strategic flexibility and ultimately value creation off of current levels.”

During the company’s quarterly conference call with investors, Zayo’s new president and COO Andrew Crouch highlighted Zayo’s goal to deliver 6% to 8% growth in its communications infrastructure fiber business, and he noted that those at the company have “a high degree of confidence that that growth rate is achievable and continue to be encouraged by the market opportunity we see. We are taking the right steps with regards to our go-to-market approach to realize this goal,” he said last week, according to a Seeking Alpha transcript of his remarks.

Specifically, Crouch pointed to the company’s expanding sales coverage model and the company’s new chief revenue officer, Phil Mottram, as elements that will drive the company’s organic growth, alongside the company’s new focus on selling specifically into vertical markets. “Early indications of our vertical approach are encouraging,” he said.

“The company indicated that its focus on leveraging the full footprint of its fiber network has worked as a competitive differentiator,” the Barclays analysts explained. “However, its organizational structure created an inability to come across and go after opportunities which capitalized on its pre-existing asset base given a limited holistic vertical focus and reach of its sales force. In other words, the company noted that its comparatively lower ‘white space’ wins (i.e. those that would leverage preexisting assets vs. large national deals) was largely due to the fact that it did not have the appropriate headcount or structure to chase those opportunities.”

Separately, in their note the Barclays analysts said Zayo continues to move forward in separating its recently acquired Allstream business, as well as researching its options to become a REIT.